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Title: Monetary policy and exchange rate regime in tourist islands
Authors: Inchausti-Sintes, Federico 
Pérez Granja, Ubay Roberto 
UNESCO Clasification: 531290 Economía sectorial: turismo
Keywords: Exchange Rate
Monetary Policy
Stochastic Dynamic General Equilibrium Models
Tourism Demand
Issue Date: 2022
Project: Ubay Pérez-Granja, PhD, was funded by ‘Contrato predoctoral del programa predoctoral de formación del personal
Journal: Tourism Economics 
Abstract: The broad impact of the travel industry on economies has been comprehensively analysed in the tourism literature. Despite this, its consequences for monetary policy have remained unaddressed. This article aims at providing a first approach in this line for the case of three small tourist islands such as Cabo Verde, Mauritius and Seychelles. The research is based on a Bayesian estimation using a dynamic stochastic general equilibrium model (DSGE), and the optimal response to a tourism demand shock of four monetary policies is analysed. According to the results, both a conventional peg and an inflation-targeting policies achieve better economic performance. More precisely, the inflation is lower in the former. However, the rise in consumption and the gain in the external competitiveness are sharper in the latter. Finally, the other two policies, an inflation-targeting with managed exchange rate policy and an imported-inflation targeting policies, generate higher consumption and external competitiveness, but, also higher inflation and interest rate.
ISSN: 1354-8166
DOI: 10.1177/1354816620959496
Source: Tourism Economics [ISSN 1354-8166], (Enero 2020), v. 28(2), p. 325-348
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