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Exchange Rate Regimes, Determinacy, and Learnability in a Two-Block World Economy

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  • Eric Schaling

    (University of Johannesburg)

  • Marco Hoeberichts

    (De Nederlandsche Bank, The Netherlands)

Abstract

We study how determinacy and learnability of global rational expectations equilibrium may be accected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We study cases in which optimal policies are being pursued country by country - where exhange rates are floating - as well as types of managed exchange rate regimes, including monetary union. This case is of strong practical relevance for monetary policy analysis in the euro area. We find that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary conditions indices (MCIs), the so-called "corner solutions" debate, and monetary union.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 120.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:120

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Related research

Keywords: Monetary strategy; sunspot equilibrium; learning; monetary policy rules; new open economy macroeconomics; exchange rate regimes; monetary union; second generation policy coordination;

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