Working Paper: CEPR ID: DP2807
Authors: Gianluca Benigno; Pierpaolo Benigno
Abstract: A positive and normative evaluation of alternative monetary policy regimes is addressed in a two-country general equilibrium model.The behaviour of the exchange rate, as well as of the other macroeconomic variables, depends crucially on the monetary regime chosen, though not necessarily on monetary shocks.The centralized welfare criterion presents a trade-off between stabilizing the economy around the flexible-price allocation and reducing the volatility of the nominal interest rates. In this framework, some form of control of the exchange rate is welfare improving.
Keywords: exchange rate regimes; monetary policy rules; welfare criterion
JEL Codes: E52; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy rules (E52) | Exchange rate (F31) |
| Monetary policy rules (E52) | Macroeconomic stability (E60) |
| Simple interest rate feedback rules (E43) | Unique and stable equilibrium (C62) |
| Fixed exchange rates (F31) | Stabilizing equilibrium (C62) |