The study deals with the international transmission of economic shocks, their consequences for exchange rates and the reconciliation of exchange rate management with monetary policy. The theoretical part of the study consists of a mainstream model of two large, interdependent economies with...

This study is concerned with the determinants of monetary policy in the ERM countries. We derive a monetary policy rule, an interest rate rule, from a minimization problem faced by the central bank. The loss function trades off costs of interest rate instability against benefits from successful...