Unconventional policies and exchange rate dynamics

Gustavo Adler, Ruy Lama and Juan Medina

Journal of International Money and Finance, 2019, vol. 95, issue C, 402-423

Abstract: We study exchange rate dynamics under cooperative and self-oriented policies in a two-country DSGE model with unconventional monetary and exchange rate policies. The cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments. Self-oriented policies (Nash equilibrium), however, entail limited exchange rate movements and an aggressive use of unconventional policies in both countries. Our results suggest that sizable exchange rate depreciations are not always a symptom of “beggar-thy-neighbor” policies. They could also reflect a desirable process of external adjustment that improves global welfare.

Keywords: Foreign exchange intervention; Quantitative easing; International policy coordination (search for similar items in EconPapers)
JEL-codes: E52 F41 F42 F44 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Working Paper: Unconventional Policies and Exchange Rate Dynamics (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:95:y:2019:i:c:p:402-423

DOI: 10.1016/j.jimonfin.2018.03.014

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