Foreign money shocks and the welfare performance of alternative monetary policy regimes


Senay O., Sutherland A.

SCANDINAVIAN JOURNAL OF ECONOMICS, cilt.109, ss.245-266, 2007 (SSCI İndekslerine Giren Dergi) identifier identifier

  • Cilt numarası: 109 Konu: 2
  • Basım Tarihi: 2007
  • Doi Numarası: 10.1111/j.1467-9442.2007.00490.x
  • Dergi Adı: SCANDINAVIAN JOURNAL OF ECONOMICS
  • Sayfa Sayıları: ss.245-266

Özet

The welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two-country sticky-price model. Money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak, but a fixed rate is superior when the expenditure switching effect is strong. However, price targeting is superior to both these regimes for all values of the expenditure switching effect. A welfare-maximising monetary rule yields lower output and exchange rate volatility than price targeting for a wide range of parameter values.