A DSGE model is used to examine whether including the exchange rate in the central bank’s policy rule can improve economic performance. Smoothing the exchange rate helps both financially-robust economies and financially-vulnerable emerging economies in handling risk premium shocks and, given a...

Relatively little empirical evidence exists about countries' external adjustment to changes in fiscal policy and, in particular, to changes in taxes. This paper addresses this question by measuring the effects of tax and government spending shocks on the current account and the real exchange...