Central puzzles in international macroeconomics are why fluctuations of the real exchange rate are so volatile with respect to other macroeconomic variables, and the contradiction of efficient risk-sharing. Several theoretical contributions have evaluated alternative forms of pricing under...

We study how monetary policy may affect determinacy and expectational stability (E-stability) of rational expectations equilibrium when the cost channel of monetary policy matters. Focusing on instrumental Taylor-type rules and optimal target rules, we show that standard policies can induce...