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The Stabilizing Properties of Floating Exchange Rates: Some International Evidence

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  • Bergvall, Anders

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    (Department of Economics)

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    Abstract

    This paper analyzes the stabilizing properties of alternative monetary policy regimes. In practice there is a choice between two broad types of monetary policy regimes: a fixed exchange rate regime or a floating exchange rate regime. In this paper I compare exchange rate targeting with different floating exchange rate regimes: strict price level targeting, flexible price level targeting and output gap targeting. The paper also evaluates the actual choice of monetary policy regime for seven countries with a pure floating exchange rate regime. In most cases the actual regime can be described as flexible price level targeting. The results suggest that flexible and strict price level targeting gives lower real and nominal variability than both exchange rate targeting and output gap targeting.

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    Bibliographic Info

    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2002:14.

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    Length: 38 pages
    Date of creation: 18 Aug 2002
    Date of revision:
    Handle: RePEc:hhs:uunewp:2002_014

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    Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
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    Web page: http://www.nek.uu.se/
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    Keywords: Monetary policy; exchange rates; macroeconomic stability;

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    References

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    1. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
    2. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach," NBER Working Papers 8604, National Bureau of Economic Research, Inc.
    3. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
    4. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
    5. Paul Soderlind, 2004. "What if the Fed had been an inflation nutter?," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1471-1473.
    6. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
    7. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    8. Bennett T. McCallum & Edward Nelson, 1997. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," NBER Working Papers 5875, National Bureau of Economic Research, Inc.
    9. Gottfries, Nils, 1999. "Markets Shares, Financial Constraints, and Pricing Behavior in the Export Market," Working Paper Series 1999:15, Uppsala University, Department of Economics.
    10. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc.
    11. Nilsson, Kristian, 1999. "Alternative Measures of the Swedish Real Effective Exchange Rate," Working Paper 68, National Institute of Economic Research.
    12. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
    13. Lafrance, Robert & Osakwe, Patrick & St-Amant, Pierre, 1998. "Evaluating Alternative Measures of the Real Effective Exchange Rate," Working Papers 98-20, Bank of Canada.
    14. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
    15. Ohlsson, Henry & Vredin, Anders, 1994. "Political Cycles and Cyclical Policies. A New Test Approach Using Fiscal Forecasts," Working Paper Series in Economics and Finance 9, Stockholm School of Economics.
    16. repec:fth:coluec:754 is not listed on IDEAS
    17. Jordi Gali & Tommaso Monacelli, 1999. "Optimal Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Boston College Working Papers in Economics 438, Boston College Department of Economics, revised 15 Nov 1999.
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    Cited by:
    1. Ivo J.M. Arnold, 2005. "Optimal regional biases in ECB interest rate setting," Nyenrode Research Papers Series 05-01, Nyenrode Business Universiteit.
    2. Gottfries, Nils, 2003. "Booms and Busts in EMU," Working Paper Series 2003:29, Uppsala University, Department of Economics.

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