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

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.

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Year of publication:	2007
Authors:	Alexandre, Fernando ; Bação, Pedro ; Driffill, John
Institutions:	Núcleo de Investigação em Políticas Económicas (NIPE), Universidade do Minho
Subject:	Exchange Rates \| Monetary Policy \| Markov Switching

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Extent:	application/pdf
Series:	NIPE Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 26/2007
Classification:	E52 - Monetary Policy (Targets, Instruments, and Effects) ; E58 - Central Banks and Their Policies ; F41 - Open Economy Macroeconomics
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005704675