The link between exchange rates and interest rates features prominently in the theoretical and empirical literature on small open economies. This paper revisits this relationship using a simple model that incorporates the role of exchange rate pass-through into domestic prices and distinguishes...

This paper compares the link between exchange rates and interest rates under full information and two alternative asymmetric information approaches. It also distinguishes between cases of expansionary and contractionary depreciations. Full information results are not robust to the presence of...

This paper offers a narrative description of Western European monetary policies during the 1980s, seen from a French and European perspective and based on the archives of the General Council of the Bank of France and of the Committee of Governors (CoG) of the central banks of the member states...

Identifying exogenous variation in monetary policy is crucial for investigating central bank policy transmission. Using newly-collected archival real-time data utilized by the Central Bank Council of the German Bundesbank, we identify unexpected changes in German monetary policy from 580 policy...

This paper re-investigates the implications of monetary policy rules on changes in exchange rate, in a risk-adjusted, uncovered interest parity model with unrestricted parameters, emphasizing the importance of modeling market expectations of monetary policy. I use consensus forecasts as a proxy...

Optimal monetary policy is studied in an environment in which money plays an essential role in facilitating exchange and aggregate shocks affect individual agents asymmetrically. Exchange may be conducted using either bank deposits (inside money) or fiat currency (outside money). A central...

Dornbusch’s exchange rate overshooting hypothesis is a central building block in international macroeconomics. Yet, empirical studies of monetary policy have typically found exchange rate effects that are inconsistent with overshooting. This puzzling result has developed into a “styled...

This paper develops an open economy portfolio balance model with endogenous asset supply. Domestic producers finance capital goods through credit and bonds in accordance with debt capital costs as well as through equity assets. Private households hold a portfolio of domestic and foreign assets,...