Monetary Policy Rules and the Exchange Rate
61 Pages Posted: 30 Jul 2000
A positive and normative evaluation of alternative monetary policy regimes is addressed in a simple two-country general equilibrium model. The behavior of the exchange rate, as well as of the other macroeconomic variables, depends crucially on the monetary regime chosen, though not necessarily on monetary shocks. The centralized welfare criterion presents a trade-off between stabilizing the economy around the flexible-price allocation and reducing the volatility of the nominal interest rates. Some form of control of the exchange rate is desirable.
JEL Classification: E50, E58, F41, F42
Suggested Citation: Suggested Citation