For the open economy, the workhorse model in intermediate textbooksstill is the Mundell-Fleming model, which basically extends theinvestment and savings, liquidity preference and money supply (IS-LM)model to open economy problems. The authors present a simple NewKeynesian model of the open...

The actual mainstream view of academics emphasizes the so-called \"two-corner solution\" with either completely fixed or independently floating exchange rates. We will argue in this paper that the requirements for fixed rates are rather too restrictive to be successful. On the other hand, the...

Although there seems to be a broad consensus among economists that purely floating or completely fixed exchange rates (the so-called corner solutions) are the only viable alternatives of exchange rate management. many countries do not behave according to this paradigm and adopt a strategy within...

Although the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticized by several economists. Colander (1995) demonstrated that the framework is logically inconsistent. Romer (2000) showed that it is unable to deal with a...

The study analyses the characteristics of professional exchange rate forecasts for the €/US$ rate. The results indicate that the quality of forecasts produced by professional economists is rather poor and incompatible with the rational expectations hypothesis. This dismal result is according...

We develop an institutional framework for central banks that try to pursue a stability-oriented monetary policy with the strategy of exchange rate targeting. Recent experience shows that a crucial element of this approach is to avoid destabilizing capital inflows. Policy makers can exert...

Due to the severity of the financial market crisis most central banks reached the limits of their traditional monetary policy instruments and relied to a very large extent on instruments of unconventional monetary policy. In our paper we develop a simple theoretical framework for the money...