Monetary policy and exchange rate targeting in open economies

On the other hand, exchange rates shifts (under fixed exchange rate regime) associated with volatility of main reference currency serving as the nominal anchor are usually

Whereas the Dornbusch’s (1976) exchange rate overshooting hypothesis predicts an instant appreciation of the exchange rate in response to a contractionary monetary policy shock,

Social losses Latvia Flexible exchange rate Currency Board ERM2 Cyprus Flexible exchange rate Currency Board ERM2 Hungary Flexible exchange rate Currency Board ERM2 Poland

Again, the rule trades off the benefit of a fixed exchange rate, insulating the economy from domestic monetary shocks, against the benefits of exchange rate adjustment, cushioning

In a Small Open Economy Model, it is demonstrated how targeting the nominal exchange rate in levels or …rst di¤erences a¤ects the economy. In particular, the paper considers

On the other hand, exchange rates shifts (under fixed exchange rate regime) associated with volatility of main reference currency serving as the nominal anchor are usually

In a similar vein, domestic policy rate of interest and real exchange rate volatility account for a larger proportion of the forecast error variance in currency substitution in

I examine this case theoretically using a two- country DSGE model; I find that when the home central bank includes a real exchange rate target in its interest rate rule, it