Unconventional Policies and Exchange Rate Dynamics

We study exchange rate dynamics under cooperative and self-oriented policies in a two-country DSGE model with unconventional monetary and exchange rate policies. The cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments. Self-oriented policies (Nash equilibrium), however, entail limited exchange rate movements and an aggressive use of unconventional policies in both countries. Our results highlight the role of international policy cooperation in allowing the exchange rate to play the traditional role of shock absorber.
Publication date: November 2017
ISBN: 9781484324844
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Topics covered in this book

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Quantitative Easing , International Policy Coordination , International Policy , Monetary Policy (Targets , Instruments , and Effects) , Open Economy Macroeconomics , International Policy Coordination and Transmission , International Business Cycles

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