Annicchiarico, Barbara and Piergallini, Alessandro (2009): Country-Specific Risk Premium, Taylor Rules, and Exchange Rates.
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The adoption of a Taylor-type monetary policy rule and an inflation target for emerging market economies that choose a flexible exchange rate regime is often advocated. This paper investigates the issue of exchange rate determination when interest-rate feedback rules are implemented in a continuous-time optimizing model of a small open economy facing an imperfect global capital market. It is demonstrated that when a risk premium on external debt affects the monetary policy transmission mechanism, the Taylor principle is not a necessary condition for determinacy of equilibrium. On the other hand, it is shown that exchange rate dynamics critically depends on whether monetary policy is active or passive.
|Item Type:||MPRA Paper|
|Original Title:||Country-Specific Risk Premium, Taylor Rules, and Exchange Rates|
|Keywords:||Risk Premium on Foreign Debt; Taylor Rules; Exchange Rate Dynamics|
|Subjects:||F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Barbara Annicchiarico|
|Date Deposited:||22. Feb 2009 07:23|
|Last Modified:||19. Feb 2013 08:23|
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Country-Specific Risk Premium, Taylor Rules, and Exchange Rates. (deposited 22. Feb 2009 07:24)
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