Working Paper
On discretion versus commitment and the role of the direct exchange rate channel in a forward-looking open economy model
Guender, Alfred V. (2002)
Irrespective of whether discretion or commitment to a binding rule guides the conduct of monetary policy, the existence of a direct exchange rate channel in the Phillips Curve causes the behavior of the key economic variables in the open economy to be dramatically different from that in the closed economy. In the open economy, the policymaker can no longer perfectly stabilize real output and the rate of inflation in the face of IS and UIP shocks as well as shocks to foreign inflation. If the exchange rate channel in the Phillips Curve is operative, then in the open economy the policymaker ...
Pacific Basin Working Paper Series , Paper 2002-04