On the one hand, the big selling points of floating exchange rates - monetary independence and accommodation of terms of trade shocks - have not lived up to their promise. On the other hand, proposals for credible institutional monetary commitments to nominal anchors have each run aground on...

Central banks with an exchange rate objective set the interest rate in response to what they call "pressure." Instead, existing interest rate rules rely on the exchange rate minus its target. To stay closer to actual policy, we introduce a rule that uses exchange market pressure (EMP), the...