Should the ECB respond to exchange rates?
Using a structural, quantitative macro model, this paper investigates benefits of including the real exchange rate of the euro into the monetary policy rule of the European Central Bank (ECB). The problem is considered from viewpoints of both the whole monetary union and a single member state with a national economy more open and facing different structural shocks than the union economy on average. According to the results, the union would benefit more from the exchange rate stabilisation than the member state, when the exchange rate response is set to minimise the loss function calculated for the whole monetary union. Only with rather high exchange rate response by the central bank, would the gain for the member state be larger. Moreover, also when it comes to central bankʼs responses to inflation and output, the common monetary policy does not fit the member state very well. The union as a whole would benefit from central bankʼs relatively stronger response to output than inflation, while for the member state the weights of inflation and output in the policy rule should be set the other way round.
Volume (Year): 18 (2005)
Issue (Month): 1 (Spring)
|Contact details of provider:|| Web page: http://www.taloustieteellinenyhdistys.fi|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laurence M. Ball, 1999.
"Policy Rules for Open Economies,"
in: Monetary Policy Rules, pages 127-156
National Bureau of Economic Research, Inc.
- Andrew G. Haldane & Nicoletta Batini, 1998.
"Forward-Looking Rules for Monetary Policy,"
NBER Working Papers
6543, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:18:y:2005:i:1:p:31-46. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.