Foreign Money Shocks and the Welfare Performance of Alternative Monetary Policy Regimes*
Year: 2007
Type: article
Abstract: 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.
Authors: Ozge Senay, Alan Sutherland
Institutions: Middle East Technical University, University of St Andrews
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2147967966