Exchange rate puzzles and policies
Fecha
2023-08-09Registro en:
9789567421718
9789567421725 (digital)
0717-6686 (Series on Central Banking, Analysis, and Economic Policies)
Autor
Itskhoki, Oleg
Mukhin, Dmitry
Institución
Resumen
What is the optimal exchange rate policy? Should exchange rates be optimally pegged, managed, or allowed to freely float? What defines a freely floating exchange rate? Do open economies face a trilemma constraint in choosing between inflation and exchange rate stabilization, unlike divine coincidence in a closed economy? These are generally difficult questions, as the exchange rate is neither a policy instrument, nor a direct objective of the policy, but rather an endogenous general-equilibrium variable tied by equilibrium relationships in both goods and financial markets. At the same time, equilibrium exchange rate behavior features a variety of puzzles from the point of view of conventional business-cycle models typically used for policy analysis in open economy.