Monetary Policy Rules and the Exchange Rate

61 Pages Posted: 30 Jul 2000

See all articles by Gianluca Benigno

Gianluca Benigno

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

Pierpaolo Benigno

Luiss Guido Carli University; Einaudi Institute for Economics and Finance (EIEF)

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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 )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7807 (Phone)

Pierpaolo Benigno

Luiss Guido Carli University

Viale Romania 32
Rome, Roma 00197
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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