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The paper develops robust measures of core inflation for Vietnam that can be used in policy making. These core inflation measures (CIMs) are based on an analytical evaluation of the inflation process in Vietnam, and use a filtering approach to narrow down potential measures that satisfy certain empirically desirable criteria. The paper finds that commonly used exclusion-based measures (EBMs) do not perform well against these empirical criteria; trimmed mean measures (TMMs) do better. Among TMMs, “one trim does not fit all periods”; periods of high and variable inflation require larger trims, and conversely. EVIEWS and MATLAB programs which accompany the paper allow quick, timely replication of CIMs as new data become available, making them valuable tools for the State Bank of Vietnam on an ongoing basis.

Banks and Banking --- Inflation --- Macroeconomics --- Estimation --- Price Level --- Deflation --- Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Banking --- Consumer price indexes --- Price controls --- Central bank policy rate --- Prices --- Financial services --- Price indexes --- Government policy --- Interest rates --- Vietnam

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Against the backdrop of an ongoing review of the inflation-targeting framework, this paper examines the real-time inflation forecasts of the Bank of Canada with the aim of identifying potential areas for improvement. Not surprisingly, the results show that errors in forecasting non-core inflation (commodity prices etc.) are found to be the largest contributors to overall inflation forecast errors. Perhaps more importantly, relatively small core inflation forecast errors appear to mask large and offsetting errors related to the output gap and the policy interest rate, partly reflecting a tendency to overestimate the neutral nominal policy rate in real time. Faced with these uncertainties, the Governing Council’s gradual approach to changing its policy settings appears to have served it well.

Inflation (Finance) --- Banks and Banking --- Inflation --- Money and Monetary Policy --- Forecasting --- Production and Operations Management --- Price Level --- Deflation --- Interest Rates: Determination, Term Structure, and Effects --- Forecasting and Other Model Applications --- Macroeconomics: Production --- Monetary Policy --- Macroeconomics --- Banking --- Economic Forecasting --- Monetary economics --- Central bank policy rate --- Economic forecasting --- Output gap --- Inflation targeting --- Prices --- Financial services --- Production --- Monetary policy --- Interest rates --- Economic theory --- Canada

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This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the change in the exchange rate following a policy announcement on changes in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.

Banks and Banking --- Foreign Exchange --- Monetary Policy --- Central Banks and Their Policies --- Open Economy Macroeconomics --- Interest Rates: Determination, Term Structure, and Effects --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Currency --- Foreign exchange --- Finance --- Banking --- Exchange rates --- Exchange rate policy --- Central bank policy rate --- Market interest rates --- Deposit rates --- Financial services --- Interest rates --- United States

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This paper studies a policy often used to defend a currency peg: raising short-term interest rates. The rationale for this policy is to stem demand for foreign reserves. Yet, this mechanism is absent from most monetary models. This paper develops a general equilibrium model with asset market frictions where this policy can be effective. The friction I emphasize is the same as in Lucas (1990): money is required for asset transactions. When the government raises domestic interest rates, agents want to increase their holdings of domestic currency in order to acquire more domestic-currency-denominated assets. Thus, agents do not run on the reserves of the central bank, and the peg survives. A key implication of the model is that an interest rate defense can always be successful, but at great costs for domestic agents. Hence the reluctance of governments to sustain this policy for long periods of time.

Banks and Banking --- Investments: Bonds --- Macroeconomics --- Money and Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Price Level --- Inflation --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Monetary economics --- Banking --- Investment & securities --- Currencies --- Interest rate policy --- Central bank policy rate --- Asset prices --- Bonds --- Interest rates --- Money --- Prices --- Brazil

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This is the first of a series of papers that are being written as part of a project to estimate a small quarterly Global Projection Model (GPM). The GPM project is designed to improve the toolkit for studying both own-country and cross-country linkages. In this paper, we estimate a small quarterly projection model of the U.S. economy. The model is estimated with Bayesian techniques, which provide a very efficient way of imposing restrictions to produce both plausible dynamics and sensible forecasting properties. After developing a benchmark model without financial-real linkages, we introduce such linkages into the model and compare the results with and without linkages.

Banks and Banking --- Inflation --- Production and Operations Management --- Macroeconomics: Production --- Price Level --- Deflation --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics --- Finance --- Banking --- Output gap --- Potential output --- Real interest rates --- Central bank policy rate --- Production --- Economic theory --- Prices --- Interest rates --- United States