Taylor Rules and the Deutschmark - Dollar Real Exchange Rate
نویسنده
چکیده
We explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate. The interest rate rule, in conjunction with some standard assumptions, implies that the deviation of the real exchange rate from its steady state depends on the present value of inflation and output gap differentials. An initial look at German data yields some support for the model. We thank the National Science Foundation for financial support, Jeffrey Frankel, Roberto Perotti, Hélène Rey, three anonymous referees and participants in the June 2002 ISOM conference for helpful comments, and Shiu-Sheng Chen, Akito Matsumoto and Yu Yuan for research assistance.
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