Research on Exchange Rates and Monetary Policy: An Overview
22 Pages Posted: 20 Sep 2007
Date Written: June 2005
Abstract
This paper reviews research carried out on exchange rates and monetary policy by central banks that participated at the Autumn Meeting of Central Bank Economists on "Exchange rates and monetary policy", which the BIS hosted on 28-29 October 2004. The first part of the paper focuses on the approaches that central banks have found most useful in modelling exchange rate behaviour. We describe efforts to explain exchange rate behaviour ex post and to forecast its future evolution ex ante. We then summarise central banks' recent research on the linkage between exchange rates and inflation, output, profits and the current account. We highlight the main models and methodologies, the main empirical results and the key challenges ahead. The second part of the paper is devoted to research that examines the actual experience that countries have had in incorporating the exchange rate into their monetary policy decisions, and the main lessons learned.
Keywords: Monetary Policy, International Finance, Macroeconomic Aspects of International Trade and Finance
JEL Classification: E5, F3, F4
Suggested Citation: Suggested Citation
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