Optimal monetary policy with a regime-switching exchange rate in a forward-looking model

Fernando Alexandre (falex@eeg.uminho.pt), Pedro Bação and Edward Driffill (john.driffill@yale-nus.edu.sg)

No 2007-09, GEMF Working Papers from GEMF, Faculty of Economics, University of Coimbra

Abstract: We evaluate the macroeconomic performance of different monetary policy rules when there is exchange rate uncertainty. We do this in the context of a non-linear rational expectations model. The exchange rate is allowed to deviate from its fundamental value and the persistence of the deviation is modeled as a Markov switching process. Our results suggest that taking into account the switching nature of the economy is important only in extreme cases.

Keywords: Exchange Rates; Monetary Policy; Markov Switching (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://estudogeral.uc.pt/bitstream/10316/11741/1/ ... 0exchange%20rate.pdf (application/pdf)

Related works:
Working Paper: Optimal monetary policy with a regime-switching exchange rate in a forward-looking model (2007)
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:gmf:wpaper:2007-09

Access Statistics for this paper

More papers in GEMF Working Papers from GEMF, Faculty of Economics, University of Coimbra Contact information at EDIRC.
Bibliographic data for series maintained by Sofia Antunes (ceber@uc.pt).