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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Volume (Year): 21 (2010)
Issue (Month): 2 (April)
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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 Ball, 1998.
"Policy Rules for Open Economies,"
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rdp9806, Reserve Bank of Australia.
- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Staff Working Papers 05-34, Bank of Canada.
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- Giancarlo Corsetti & Paolo Pesenti, 2001. "International dimensions of optimal monetary policy," Staff Reports 124, Federal Reserve Bank of New York.
- Laurence Ball, 2010.
"Policy Responses to Exchange-rate Movements,"
Open Economies Review,
Springer, vol. 21(2), pages 187-199, April.
- Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Bank of Canada Review, Bank of Canada, vol. 2005(Autumn), pages 41-50.
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