Changing Monetary Policy Rules, Learning, and Real Exchange Rate Dynamics

Appendix to : Monetary Policy Rules and the Exchange Rate

The Role of the Exchange Rate in Monetary-Policy Rules

For a country that chooses not to "permanently" fix its exchange rate through a currency board, or a common currency, or some kind of dollarization, the only alternative monetary policy that can work well in the long run is one based on the trinity of (i) a flexible exchange rate, (ii) an inflation target, and (iii) a monetary policy rule.' While not often put into this threepart format, the de...

Monetary Policy, Exchange Rate Flexibility, and Exchange Rate Pass-Through

This paper develops a dynamic general-equilibrium (DGE) model of a small open economy to investigate alternative monetary rules, differing primarily in the degree to which they allow for exchange rate flexibility. A central argument of the paper is that the nature of the trade-off between fixed and floating exchange rates may be quite different in mature industrial economies than in emerging-ma...

Learning, monetary policy rules, and macroeconomic stability

Several papers have documented a regime switch in US monetary policy from ‘passive’ and destabilizing in the pre-1979 period to ‘active’ and stabilizing afterwards. These studies typically work with DSGE models with rational expectations. This paper relaxes the assumption of rational expectations and allows for learning instead. Economic agents form expectations from simple models and update th...

Appendix to : “ Monetary Policy Rules and the Exchange Rate ” Gianluca Benigno and Pierpaolo Benigno 1