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A Model for Monetary Policy Analysis in Uruguay

Author

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  • Mr. Rafael A Portillo
  • Ms. Yulia Ustyugova

Abstract

Uruguay has recently reverted to a money targeting (MT) framework in the context of a disinflation strategy. We develop a quantitative model for monetary policy analysis incorporating money targets in the policy framework while also retaining a central role for interest rates in the transmission of policy. We use the model to show that tight financial conditions for a period may be necessary for inflation to converge to the middle of the target band. We also discuss various aspects of the MT framework. Two issues stand out. Excessive focus on hitting money targets can result in undesirable changes in the policy stance; while targets that incorporate elements of money demand forecasting are superior to targets that are excessively smooth or do not adjust for base effects.

Suggested Citation

  • Mr. Rafael A Portillo & Ms. Yulia Ustyugova, 2015. "A Model for Monetary Policy Analysis in Uruguay," IMF Working Papers 2015/170, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/170
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    References listed on IDEAS

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    1. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 975-1009.
    2. International Monetary Fund, 2011. "Uruguay: Selected Issues Paper," IMF Staff Country Reports 2011/063, International Monetary Fund.
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    4. Michal Andrle & Mr. Andrew Berg & Mr. Enrico G Berkes & Mr. Rafael A Portillo & Mr. Jan Vlcek & Rogelio Morales, 2013. "Money Targeting in a Modern Forecasting and Policy Analysis System: an Application to Kenya," IMF Working Papers 2013/239, International Monetary Fund.
    5. Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
    6. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 707-734.
    7. Gerardo Licandro & Miguel Mello, 2012. "Cambios recientes en la transmisión de la tasa de política monetaria a la estructura de tasas en Uruguay," Documentos de trabajo 2012014, Banco Central del Uruguay.
    8. Conrado Brum & Elizabeth Bucacos & Patricia Carballo, 2010. "La demanda de dinero en una economía dolarizada. Una estimación para Uruguay," Documentos de trabajo 2010013, Banco Central del Uruguay.
    9. International Monetary Fund, 2011. "Uruguay: 2011 Selected Issues," IMF Staff Country Reports 2011/376, International Monetary Fund.
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    Cited by:

    1. Diego Labat & Gerardo Licandro, 2021. "Towards a quality currency," Documentos de trabajo 2021005, Banco Central del Uruguay.
    2. Ana Inés Arbiza, 2018. "¿Es estable la demanda de dinero? Análisis del caso Uruguayo," Documentos de trabajo 2018009, Banco Central del Uruguay.

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