Simple monetary policy rules and exchange rate uncertainty

Kai Leitemo and Ulf Söderström ()

Proceedings, 2001, issue Mar

Abstract: We analyze the performance and robustness of some common simple rules for monetary policy in a new-Keynesian open economy model under different assumptions about the determination of the exchange rate. Adding the exchange rate to an optimized Taylor rule gives only slight improvements in terms of the volatility of important variables in the economy. Furthermore, although the rules including the exchange rate (and in particular, the real exchange rate) perform slightly better than the Taylor rule on average, they sometimes lead to very poor outcomes. Thus, the Taylor rule seems more robust to model uncertainty in the open economy.

Keywords: Monetary policy; Foreign exchange rates (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
https://www.frbsf.org/wp-content/uploads/0103conf1.pdf Full Text (text/html)

Related works:
Journal Article: Simple monetary policy rules and exchange rate uncertainty (2005)
Working Paper: Simple Monetary Policy Rules and Exchange Rate Uncertainty (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfpr:y:2001:i:mar:x:2

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Proceedings from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().