Irrespective of whether discretion or commitment to a binding rule guides the conduct of monetary policy, the existence of a direct exchange rate channel in the Phillips Curve causes the behavior of the key economic variables in the open economy to be dramatically different from that in the...

Compared to the standard Phillips curve, an open-economy version that features a real exchange rate channel leads to a markedly different target rule in a New Keynesian optimizing framework. Under optimal policy from a timeless perspective (TP) the target rule involves additional history...

type="main" xml:id="ecor12097-abs-0001" <p>This article offers a theory-based explanation for why high- interest-rate countries see their currencies appreciate, the so-called UIP puzzle. The central bank bases its target rule on the lag of the policy instrument and the CPI inflation rate. When...</p>

Irrespective of whether discretion or commitment to a binding rule guides the conduct of monetary policy, the existence of a direct exchange rate channel in the Phillips Curve causes the behavior of the key economic variables in the open economy to be dramatically different from that in the...

This article sets out a simple New Keynesian open-economy model and shows that the conduct of discretionary monetary policy in an open economy differs substantially from the closed-economy framework. The article shows analytically that the existence of the direct exchange rate channel in the...

Central banks frequently apply target rules or instrument rules in the conduct of monetary policy. For a central bank with multiple target variables such as the Federal Reserve's ‘dual mandate’, a target rule expresses the desired values for each target and the relative weight given to each....

This paper compares a monetary policy that targets average inflation with one that targets the change in the output gap. It shows that the stabilizing properties of monetary policy strategies are sensitive to both the existence of lags in the transmission mechanism and the design of target...