This article considers recent literature on optimal monetary policy in simple open-economy models. The presence of pricing to market, incomplete financial markets, and differences in preferences among households (in different countries) introduces some fundamental differences between closed- and...

We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of...

Leaving foreign exchange markets to themselves may not lead to realistic and stable exchange rates. Thus appropriate criteria for interference must be defined. The OPTICA (Optimal Currency Area) Group which was appointed by the European Commission tried to work out appropriate rules for the EC....