The objective of this paper is to analyze the effects of alternative monetary rules on realexchange rate persistence. Using a two-country stochastic dynamic general equilibrium withnominal price stickiness and local currency pricing, we will show how the persistence ofpurchasing power parity...

This paper shows that properly designed interest rate rules can be consistent withmaintaining exchange rate stability. It sheds light on the relation between interest rate rules,exchange rate regimes, and determinacy of the rational expectation equilibrium in a modernmacroeconomic framework.[...]

We propose a theory of exchange rate determination under interestrate rules in a two-country model. We first show that simpleinterest rate feedback rules can determine a unique and stableequilibrium without any explicit reaction to the nominal exchangerate.We characterize how the behavior of the...

This paper addresses the consumption–real exchange rate anomaly.International real business cycle models based on complete financialmarkets predict a unitary correlation between the realexchange rate and the ratio of home to foreign consumptionwhen subjected to supply-side shocks. In the data,...

[...]This article examines how Japanese exporters areresponding to the conflicting objectives of maintainingstable profit margins and stable export sales when the valueof the yen fluctuates. We find that Japanese firms tend tostrike a balance between these goals. The firms’ foreigncustomers do...

[...]Derivatives contracts are especially efficient vehiclesfor unbundling the price risks embodied in assets andliabilities.2 The contracts allow users to trade away therisks they do not wish to be exposed to while retainingother risk exposures. For example, in a financing relationshipbetween a...