Monetary Policy Rules and the Exchange Rate

61 Pages Posted: 30 Jul 2000  

Gianluca Benigno

London School of Economics & Political Science (LSE) - Department of Economics

Pierpaolo Benigno

New York University - Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Abstract

A positive and normative evaluation of alternative monetary policy regimes is addressed in a simple two-country general equilibrium model. The behavior of the exchange rate, as well as of the other macroeconomic variables, depends crucially on the monetary regime chosen, though not necessarily on monetary shocks. The centralized welfare criterion presents a trade-off between stabilizing the economy around the flexible-price allocation and reducing the volatility of the nominal interest rates. Some form of control of the exchange rate is desirable.

JEL Classification: E50, E58, F41, F42

Suggested Citation

Benigno, Gianluca and Benigno, Pierpaolo, Monetary Policy Rules and the Exchange Rate. Available at SSRN: https://ssrn.com/abstract=231171 or http://dx.doi.org/10.2139/ssrn.231171

Gianluca Benigno (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

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London WC2A 2AE
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+44 20 7955 7807 (Phone)

Pierpaolo Benigno

New York University - Stern School of Business ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-8958 (Phone)
212-995-4186 (Fax)

HOME PAGE: http://homepages.nyu.edu/~pb50

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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