Currency Depreciation and Monetary Policy.

From Hard Currency Policy to Monetary Union

In the wake of monetary integration in Europe, Austria abandoned the tested hard currency policy (HCP) for joining EMU as a member. The final target of monetary policy and real sector adjustment needs are similar in both regimes, and the HCP may therefore be viewed as a convenient "training camp" for later EMU accession. Georg Winckler devoted a number of essays on the critique, but also on the...

Currency Misalignments and Optimal Monetary Policy: A Reexamination

This paper examines optimal monetary policy in an open-economy two-country model with sticky prices. We find that optimal policy must target not only inflation and the output gap, but also the currency misalignment. However the interest rate reaction function that supports this targeting rule involves only the CPI inflation rate. This result highlights how examination of interest-rate reaction ...

Monetary Policy, Currency Unions and Open Economy Macrodynamics

Asymmetric Information and Monetary Policy in Common Currency Areas

In a Common Currency Area (CCA) the Common Central Bank sets a uniform rate of inflation across countries, taking into account the area’s economic conditions. Suppose that countries in recession favor a more expansionary policy than countries in expansion, a conflict of interest between members arises when national business cycles are not fully syncronized. If governments of member countries ha...

Tight credit policy versus currency depreciation: Simulations from a trade and inflation model of India

Using a small macroeconometric model that examines the determinants of India’s trade and inflation, this paper addresses the effects of a reform policy package similar to those implemented in 1991. Policy simulations using dynamic simulation method compare the responses to devaluation with the responses to tight credit policy. It is shown that the trade balance effects of tight credit policy ar...