Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/17951 
Year of Publication: 
2007
Series/Report no.: 
Economics Discussion Papers No. 2007-28
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
Using a New Keynesian macro model, the paper reconsiders the question, whether the central banks should directly respond to exchange rate movements. It is assumed that the transmission of monetary policy to output is carried out by the long-term interest rate, which is determined as a sum of expectations of short-term interest rates and a non-negligible term premium. According to the results, the central banks could gain from stabilizing the exchange rate movements more than suggested in the previous literature. The welfare gains are more clearly seen in the reduced volatility of inflation than stabilization of output, however.
Subjects: 
Open economy
Exchange rate determination
Monetary policy
JEL: 
E52
E32
E58
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

Files in This Item:
File
Size
130.12 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.