It is obvious that an optimal policy should consider main dimensions of the phenomenon that can affect the transmission mechanism of that policy. In an open economy, it is expected that variables of the foreign sector play important role in its economic behavior. Therefore, it needs that any optimal policy in an open economy to design in such a way which involves changes in the foreign sector. ...

When the exchange rate is either fixed or floating, the currency trading of the central bank is relatively well understood. In intermediate regimes, or ‘dirty floats’, three different alternative behaviours of the central bank can be conjectured: symmetrically preventing changes of the exchange rate vs. preventing appreciation vs. preventing depreciation. In this paper, we describe a testing st...

a central problem ill empirical macroeconomics is to determine when and how much the exchange rate is misaligned. this paper clarifies and calculates the concept of’ the equilibrium real exchange rate, using a structural vector auto regression (var) model. by imposing long—run restrictions on a var model for iran, lour structural shocks are identified: nominal demand, real demand, supply and oi...

We study financial fragility, exchange rate crises, and monetary policy in an open economy version of a Diamond-Dybvig model. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails, banking crises and speculative attacks become possible. We compare currency boards, fixed rates, and...

This paper investigates whether and how exchange rate movements were taken into account in formulating monetary policy in Australia, Canada, New Zealand and the United Kingdom. We develop and estimate a structural general equilibrium two-sector model with sticky prices and wages, partial indexation on lagged inflation, a combination of both producer currency pricing and local currency pricing f...

a r t i c l e i n f o JEL classification: E52 E58 F41 Keywords: Monetary policy rule Incomplete exchange rate pass-through Tobin's Q channel Asset prices This paper focuses on the role of the Tobin's Q channel in a two-country framework in which exporting firms set their prices on the basis of local currency pricing. Incomplete exchange rate pass-through significantly affects the Tobin's Q chan...