Assessing the Welfare Cost of a Fixed Exchange-Rate Policy

Arbeitspapier

This paper performs a welfare analysis based on the hypothetical scenario that Denmark gave up its peg and started conducting monetary policy according to a Taylor rule. For this we rely on a dynamic stochastic general equilibrium model for a small open economy that was estimated on Danish data using Bayesian methods. We obtain the result that the gain in welfare is equivalent to a permanent increase of around 0.8 pct in the level of consumption. Examining a range of alternative scenarios does not change this conclusion, unless we assume a degree of policy errors under the Taylor rule that is substantially larger than those estimated by other studies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EPRU Working Paper Series ; No. 2005-04

Classification and Topics

• Classification: Wirtschaft
• Subject: open economy ; monetary policy ; business cycles ; welfare ; Fester Wechselkurs ; Wechselkurspolitik ; Geldpolitik ; Taylor-Regel ; Allgemeines Gleichgewicht ; Kleine offene Volkswirtschaft ; Konjunktur ; Dänemark

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dam, Niels Arne ; Gregers Linaa, Jesper
• Event: Veröffentlichung
• (who): University of Copenhagen, Economic Policy Research Unit (EPRU)
• (where): Copenhagen
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/82013
• Last update: 10.03.2025, 11:42 AM CET