Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon under rational expectations These requirements lead to instrument rules for interest rate setting that can be called CIP (constant interest rate projections) rules. We consider the twin questions of ...

Countries select particular exchange rate arrangements for a variety of reasons. For example, the ability to conduct an independent monetary policy is often cited as the main advantage of having a floating exchange rate regime. Conversely, countries sometimes tie their exchange rate to that of a larger country—foregoing the ability to conduct independent monetary policies—to benefit from the re...

Following the damaging real effects of asset price fluctuations over the recent financial crisis, the debate on the appropriate role of such prices in a monetary policy context has gained renewed attention. This paper argues that a direct monetary policy response to asset prices is not desirable under common instrumental rate rules. To illustrate this point, we build an adaptive learning model,...

Given structural shifts in the economy, optimal simple monetary policy rules may respond with switches in their policy parameters. When the growth rate, inter-temporal preferences, or volatilities switch, the monetary authority chooses regime-dependent policy parameters to maximize welfare. These optimized policy parameters may differ across regimes and from the optimal choice of parameters for...

In a managed floating exchange rate regime, one of the most important issues is the degree to which the monetary authorities intervene in the foreign exchange market.  The appropriate level of intervention in the foreign exchange market can be discussed in a framework which emphasizes the trade-off between changes in the country’s level of international reserves and minimizes the country’s real...

A sound monetary/exchange rate policy is a key ingredient of successful economic development, particularly in the case of the formerly Communist transition economies of Eastern Europe. This paper analyzes monetary/exchange rate policy in Ukraine. It presents the development of such policy throughout the 1990s, and analyzes the present policy regime and its strengths and weaknesses. The paper al...