Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 122: Simple Monetary Policy Rules and Exchange Rate Uncertainty

Kai Leitemo () and Ulf Söderström ()
Additional contact information
Kai Leitemo: Research Department, Postal: Norges Bank, P.O. Box 1179, 0107 Oslo, Norway
Ulf Söderström: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: We analyze the performance and robustness of some common simple rules for monetary policy in a New-Keynesian open economy model under different assumptions about the exchange rate model. Adding the exchange rate to an optimized Taylor rule gives only small improvements in terms of economic stability in most model configurations. The Taylor rule is also slightly more robust to uncertainty about the exchange rate model than are rules that respond to the rate of exchange rate depreciation. Our results thus indicate that the Taylor rule may be sufficient to stabilize a small open economy, also under exchange rate model uncertainty.

Keywords: Open economy; Exchange rate determination; Model uncertainty; Robustness of policy rules

JEL-codes: E52; E58; F41

41 pages, June 1, 2001

Full text files 

wp_122.pdf PDF-file

Download statistics

Published as
Kai Leitemo and Ulf Söderström, (2005), 'Simple Monetary Policy Rules and Exchange Rate Uncertainty', Journal of International Money and Finance, vol 24, no 3, pages 481-507

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0122This page generated on 2024-09-13 22:16:57.