Monetary Policy Rules and the Exchange Rate

Benigno, Gianluca; Benigno, Pierpaolo

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Monetary Policy Rules and the Exchange Rate

63 Pages Posted: 30 May 2001

See all articles by Gianluca Benigno

Gianluca Benigno

Federal Reserve Bank of New York; London School of Economics & Political Science (LSE) - Department of Economics

Pierpaolo Benigno

University of Bern - Department of Economics

There are 2 versions of this paper

Date Written: May 2001

Abstract

A positive and normative evaluation of alternative monetary policy regimes is addressed in a two-country general equilibrium model. The behaviour 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. In this framework, some form of control of the exchange rate is welfare improving.

Keywords: Monetary policy rules, exchange rate regimes, welfare criterion

JEL Classification: E52, F41

Suggested Citation: Suggested Citation

Benigno, Gianluca and Benigno, Gianluca and Benigno, Pierpaolo, Monetary Policy Rules and the Exchange Rate (May 2001). Available at SSRN: https://ssrn.com/abstract=271697