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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- Laurence Ball, 1998.
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NBER Working Papers
6760, National Bureau of Economic Research, Inc.
- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Working Papers 05-34, Bank of Canada.
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- Laurence M. Ball, 2009.
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NBER Working Papers
15173, National Bureau of Economic Research, Inc.
- Giancarlo Corsetti & Paolo Pesenti, 2001.
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- Giancarlo Corsetti & Paolo Pesenti, 2001. "International Dimensions of Optimal Monetary Policy," NBER Working Papers 8230, National Bureau of Economic Research, Inc.
- 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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