Policy Responses to Exchange-rate Movements
This paper examines policy responses to exchange-rate movements in a simple model of an open economy. The optimal response of monetary policy to an exchange-rate change depends on the source of the change: on whether the underlying shock is a shift in capital flows, manufactured exports, or commodity prices. The paper compares the model's prescriptions to the policies of an actual central bank, the Bank of Canada. Finally, the paper considers the role of fiscal policy in an open economy. Coordinated fiscal and monetary responses to exchange-rate movements stabilize output at the sectoral as well as aggregate level.
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- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Bank of Canada Review, Bank of Canada, vol. 2005(Autumn), pages 41-50.
- Corsetti, Giancarlo & Pesenti, Paolo, 2005.
"International dimensions of optimal monetary policy,"
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Elsevier, vol. 52(2), pages 281-305, March.
- Giancarlo Corsetti & Paolo Pesenti, 2001. "International dimensions of optimal monetary policy," Staff Reports 124, Federal Reserve Bank of New York.
- Corsetti, Giancarlo & Pesenti, Paolo, 2002. "International Dimensions of Optimal Monetary Policy," CEPR Discussion Papers 3349, C.E.P.R. Discussion Papers.
- Giancarlo Corsetti & Paolo Pesenti, 2001. "International Dimensions of Optimal Monetary Policy," NBER Working Papers 8230, National Bureau of Economic Research, Inc.
- Laurence Ball, 1998.
"Policy Rules for Open Economies,"
NBER Working Papers
6760, National Bureau of Economic Research, Inc.
- Laurence M. Ball, 2009.
"Policy Responses to Exchange-Rate Movements,"
NBER Working Papers
15173, National Bureau of Economic Research, Inc.
- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Staff Working Papers 05-34, Bank of Canada.
- Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
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