Optimal monetary policy with a regime-switching exchange rate in a forward-looking model

Fernando Alexandre (), Pedro Bação and Edward Driffill

No 26/2007, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: We evaluate the macroeconomic performance of different monetary policy rules when there is exchange rate uncertainty. We do this in the context of a non-linear rational expectations model. The exchange rate is allowed to deviate from its fundamental value and the persistence of the deviation is modeled as a Markov switching process. Our results suggest that taking into account the switching nature of the economy is important only in extreme cases.

Keywords: Exchange Rates; Monetary Policy; Markov Switching. (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Optimal monetary policy with a regime-switching exchange rate in a forward-looking model (2007)
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