Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 637: On the Link between Exchange-Rate Regimes and Monetary-Policy Autonomy: The European Experience

Jens Forssbaeck and Lars Oxelheim ()
Additional contact information
Jens Forssbaeck: Institute of Economic Research, Postal: Lund University, P.O. Box 7080-SE-220 07 Lund, Sweden
Lars Oxelheim: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We investigate monetary-policy autonomy under different exchange-rate regimes in small, open European economies during the 1980s and 1990s. We find no systematic link between ex post monetary-policy autonomy and exchange rate regimes. This result is enforced for countries/periods with alternative nominal targets. Our interpretation of the results is that over the medium and long term following an ‘independent’ target for monetary policy, which does not deviate much from the targets of those countries to which one is closely financially integrated, is as constraining as locking the exchange rate to some particular level

Keywords: Exchange Rate Regimes; Monetary Policy Autonomy; Capital Mobility

JEL-codes: E42; E52; F41

39 pages, March 15, 2005

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