Caution or Activism? Monetary Policy Strategies in an Open Economy

Martin Ellison, Lucio Sarno and Jouko Vilmunen

No 18, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: We examine optimal policy in an open-economy model with uncertainty and learning, where monetary policy actions affect the economy through the real exchange rate channel. Our results show that the degree of caution or activism in optimal policy depends on whether central banks are in coordinated or uncoordinated equilibrium. If central banks coordinate their policy actions then activism is optimal. In contrast, if there is no coordination, caution prevails. In the latter case caution is optimal because it helps central banks to avoid exposing themselves to manipulative actions by other central banks

Keywords: learning; monetary policy, open economy (search for similar items in EconPapers)
JEL-codes: D83 E52 F41 (search for similar items in EconPapers)
Date: 2007-02-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: CAUTION OR ACTIVISM? MONETARY POLICY STRATEGIES IN AN OPEN ECONOMY (2007)
Working Paper: Caution or Activism? Monetary Policy Strategies in an Open Economy (2006)
Working Paper: Caution or Activism? Monetary Policy Strategies in an Open Economy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:mmf:mmfc06:18

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