How Costly is Exchange Rate Stabilisation for an Inflation Targeter? The Case of Australia

Crosby, Mark; Kam, Timothy; Lees, Kirdan

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How Costly is Exchange Rate Stabilisation for an Inflation Targeter? The Case of Australia

Date

2008

Authors

Crosby, Mark

Kam, Timothy

Lees, Kirdan

Publisher

Blackwell Publishing Ltd

Abstract

This paper quantifies the costs of mitigating exchange rate volatility within the context of a flexible inflation targeting central bank. Within a standard linear-quadratic formulation of inflation targeting, we append a term that penalises deviations in