This paper introduces a real exchange rate rule of the type analyzed by Dornbusch (1982) in an optimizing, two-sector, monetary model of a small open economy. By this rule the government increases the devaluation rate when the real exchange rate is below its long-run level and reduces it when...

A simple stochastic equilibrium structure is used to study the implications of monetary and fiscal policy interactions for government intertemporal budget balance. Existence and uniqueness of monetary equilibria are shown to depend on parameters of policy rules. The paper derives closed form...

This paper describes research comparing the response of inflation to changes in exchange rate competitiveness in various regions of the world. The paper first presents evidence that an empirical relationship between the rate of inflation and the level of the real exchange rate, which was...

This paper addresses the impact of monetary policy on exchange rates during financial crises. Some observers have argued that a tightening of monetary policy is necessary to stabilize the exchange rate, restore confidence, and lay the groundwork for an eventual recovery of economic activity....

This paper provides an evaluation of the effectiveness of inflation targeting in four industrial countries --New Zealand, Canada, the United Kingdom, and Sweden --focussing on the recent period of economic recovery. Evidence drawn from fmancial market data suggests that credibility of their...

Changes in monetary policy are typically implemented gradually, an empirical observation known as interest-rate smoothing. We propose the explanation that time-non-separable preferences may render interest-rate smoothing optimal. We find that when consumers have "catching-up-with-the-Joneses"...

This paper examines the factors behind long-run movements of the dollar. Most recent work has concluded that structural exchange rate models explain only a small proportion of exchange rate movements. However, many economists still find the theory that links exchange rates and interest rates...

This paper explores the baby boom's impact on U.S. house prices and interest rates in the post-war 20th century and beyond. Using a simple Lucas asset pricing model, I quantitatively account for the increase in real house prices, the path of real interest rates, and the timing of low-frequency...

This paper examines the available data that may shed light on the carry trade in Japanese yen. We define an individual or a sector to be engaged in the carry trade if it has a short position in yen and a long position in other currencies. The tendency of large yen movements to be skewed toward...

This study uses panel data techniques to estimate a common compo­nent to the ex post real interest rates of nine countries with liberal capital markets over the past 15 years. We show that the residuals from such a regression have almost no serial correlation, and that each country's real...