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.[...]

This paper proposes a microfounded general equilibrium model of the U.S. and European economies suitable for analyzing the transmission of monetary and fiscal policy shocks between the U.S. and Europe. The focus is on understanding the determinants of transatlantic economic interdependence. A...

We revisit Obstfeld and Rogoff's (1995) results on exchange rate dynamics in a two-country, monetary model with incomplete asset markets, stationary net foreign assets, and endogenous nominal interest rate setting a la Taylor (1993). Under flexible prices, the nominal exchange rate exhibits a...