Taylor Rules and the Deutschmark-Dollar Real Exchange Rate

Charles Engel () and Kenneth D. West ()

No 10995, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate. The interest rate rule, in conjunction with some standard assumptions, implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials. The weights are functions of the parameters of the interest rate rule. An initial look at German data yields some support for the model.

JEL-codes: F41 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mac
Date: 2004-12
Note: IFM ME
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Journal Article: Taylor Rules and the Deutschmark: Dollar Real Exchange Rate (2006)
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