Foreign money shocks and the welfare performance of alternative monetary policy regimes

Date

2007-01-01

Author

Senay, Ozge
Sutherland, Alan

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The welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two-country sticky-price model. Money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak, but a fixed rate is superior when the expenditure switching effect is strong. However, price targeting is superior to both these regimes for all values of the expenditure switching effect. A welfare-maximising monetary rule yields lower output and exchange rate volatility than price targeting for a wide range of parameter values.

Subject Keywords

Economics and Econometrics

URI

https://hdl.handle.net/11511/65552

Journal

SCANDINAVIAN JOURNAL OF ECONOMICS

DOI

https://doi.org/10.1111/j.1467-9442.2007.00490.x

Collections

Department of Economics, Article

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Citation Formats

O. Senay and A. Sutherland, “Foreign money shocks and the welfare performance of alternative monetary policy regimes,” SCANDINAVIAN JOURNAL OF ECONOMICS, pp. 245–266, 2007, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/65552.