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.
|Date of creation:||Jul 2009|
|Date of revision:|
|Publication status:||published as Laurence Ball, 2010. "Policy Responses to Exchange-rate Movements," Open Economies Review, Springer, vol. 21(2), pages 187-199, April.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Giancarlo Corsetti & Paolo Pesenti, 2001.
"International dimensions of optimal monetary policy,"
124, Federal Reserve Bank of New York.
- Corsetti, Giancarlo & Pesenti, Paolo, 2005. "International dimensions of optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 281-305, March.
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- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Staff Working Papers 05-34, Bank of Canada.
- Laurence Ball, 2010.
"Policy Responses to Exchange-rate Movements,"
Open Economies Review,
Springer, vol. 21(2), pages 187-199, April.
- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Bank of Canada Review, Bank of Canada, vol. 2005(Autumn), pages 41-50.
- Laurence Ball, 1998.
"Policy Rules for Open Economies,"
RBA Research Discussion Papers
rdp9806, Reserve Bank of Australia.
- 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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