publication . Other literature type . Article . 2015

Monetary Policy in Small Open Economies: The Role of Exchange Rate Rules

Ana Maria Santacreu;
Open Access
  • Published: 01 Jan 2015
  • Publisher: Federal Reserve Bank of St. Louis
Abstract
Understanding the costs and benefits of alternative monetary policy rules is important for economic welfare. Within the context of a small open economy model and building on the work of Mihov and Santacreu (2013), the author analyzes the economic implications of two monetary policy rules. The first is a rule in which the central bank uses the nominal exchange rate as its policy instrument and adjusts the rate whenever there are changes in the economic environment. The second is a standard interest rate rule in which the central bank adjusts the short-term nominal interest rate to changes in the economic environment. The main finding of the analysis is that, if t...
Subjects
free text keywords: jel:E52, jel:E58, jel:F41, Interest rate, media_common.quotation_subject, media_common, Fisher hypothesis, Monetary economics, International Fisher effect, Covered interest arbitrage, Real interest rate, Interest rate parity, Economics, Exchange rate, Nominal interest rate, Macroeconomics
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