In this paper, we examine the incentives for central bank activism and caution in a two-country open-economy model with uncertainty and learning.We find that the presence of a strategic interaction between the home and foreign central banks creates an additional motivation for caution in...

In this paper, we examine the incentives for central bank activism and caution in a two-country open-economy model with uncertainty and learning. We find that the presence of a strategic interaction between the home and foreign central banks creates an additional motivation for caution in...

We examine optimal policy in an open-economy model with uncertainty and learning, where monetary policy actions affect the economy through the real exchange rate channel. Our results show that the degree of caution or activism in optimal policy depends on whether central banks are in coordinated...