Arbeitspapier
Simple Rules of the Monetary Policy and Incomplete Exchange Rate Pass-Through
The performance of various monetary rules is investigated in an open economy with incomplete exchange rate pass-through. Implementing monetary policy through an exchange-rate augmented policy rule does not improve social welfare compared to using an optimized Taylor rule, irrespective of the degree of pass-through. However, an indirect exchange rate response, through a policy reaction to Consumer Price Index (CPI) inflation rather than to domestic inflation, welfare-enhancing in all pass-through cases. This result is moreover independent of whether society values domestic or CPI inflation stabilization. The only case where a direct real exchange rate response is slightly welfare improving occurs when the other reaction coefficients, on inflation and output, are sub-optimal.
- Language
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Englisch
- Classification
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Wirtschaft
- Subject
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Exchange rate pass-through
monetary policy
simple policy rules
small open economy
Taylor rule
- Event
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Geistige Schöpfung
- (who)
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Alali, Walid Y.
- Event
-
Veröffentlichung
- (who)
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ZBW - Leibniz Information Centre for Economics
- (where)
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Kiel, Hamburg
- (when)
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2012
- Handle
- Last update
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10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Alali, Walid Y.
- ZBW - Leibniz Information Centre for Economics
Time of origin
- 2012