Monetary Policy Transmission Mechanisms and Currency Unions: A Vector Error Correction Approach to a Trans-Tasman Currency Union

From Hard Currency Policy to Monetary Union

In the wake of monetary integration in Europe, Austria abandoned the tested hard currency policy (HCP) for joining EMU as a member. The final target of monetary policy and real sector adjustment needs are similar in both regimes, and the HCP may therefore be viewed as a convenient "training camp" for later EMU accession. Georg Winckler devoted a number of essays on the critique, but also on the...

Monetary Policy, Currency Unions and Open Economy Macrodynamics

Monetary policy in heterogeneous currency unions: Reections based on a micro-founded model of Optimum Currency Areas

The adoption of a common currency has fostered European economic integration and provided many European countries with an e¢ cient tool to reduce in‡ation and …nancial volatility. It is well understood, however, that a single monetary policy also opens a stabilization gap at national level, relative to an ideal benchmark in which output gaps and marginal costs are e¢ ciently stabilized in each ...

Monetary policy and exchange rate overshooting in Iran: A Vector Errors Correction (VEC) approach

Assumption of exchange rate overshooting has significant position in international macroeconomic discussion. This phenomenon is one of the abnormal behaviors of exchange rate that happen in short run. Dornbusch (1976) shows that because speed of equilibrium prices is slow relative to asset markets and commodity prices are sticky in the short run, However, over time, commodity prices will rise a...

Currency Misalignments and Optimal Monetary Policy: A Reexamination

This paper examines optimal monetary policy in an open-economy two-country model with sticky prices. We find that optimal policy must target not only inflation and the output gap, but also the currency misalignment. However the interest rate reaction function that supports this targeting rule involves only the CPI inflation rate. This result highlights how examination of interest-rate reaction ...