Some empirical and theoretical studies have emphasized on fixed exchange rate regime in controlling time inconsistency, while others consider the role of target zone regime as an important factor. Thus there is no general consensus to decide which exchange rate regime may bring about less time-inconsistency. The main purpose of this study is to investigate policy time-inconsistency in exchange ...

A currency area can be a self-validating optimal policy regime, even when monetary unification does not foster real economic integration and intra-industry trade. In our model firms choose the degree of exchange rate pass-through onto export prices accounting for expected monetary policies, and monetary authorities choose optimal policy rules taking firms’ pass-through as given. We show that th...

T here is always uncertainty about the soundness of an economic model’s structure and parameters. Therefore, central banks normally face with uncertainty about the key economic explanatory relationships. So, policymaker should take into account the uncertainty in formulating monetary policies. The present study is aimed to examine robust optimal monetary policy under uncertainty, by ...

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...

Precis: Monetary and fiscal policies are examined in a steady-state small open economy model. Com­ plete price taking behaviour implies that domestic output is supply determined and invariant to domestic shocks. Balanced budget fiscal policy does, however, alter equilibrium real disposable income. As the terms of trade do not vary with the exchange rate regime the effectiveness of macro policie...