Do Exchange-Rate Regimes Matter for Monetary-Policy Autonomy? The Experiences of 11 Small, Open European Economies in the 1980s and 1990s

We investigate monetary-policy autonomy under different exchange-rate regimes in small, open European economies during the 1980s and 1990s. We find no systematic difference in the degree of nominal monetary-policy autonomy enjoyed by those countries that pursue flexible exchange-rate regimes as compared to those that have kept their exchange rates fixed. Our interpretation of the results is that over the medium and long term following an ‘independent’ target for monetary policy, which does not deviate much from the targets of those countries to which one is closely financially integrated, is as constraining as locking the exchange rate to some particular level.