Unconventional Policies and Exchange Rate Dynamics

Author/Editor:

Gustavo Adler ; Ruy Lama ; Juan Pablo Medina

Publication Date:

November 13, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

We study exchange rate dynamics under cooperative and self-oriented policies in a two-country DSGE model with unconventional monetary and exchange rate policies. The cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments. Self-oriented policies (Nash equilibrium), however, entail limited exchange rate movements and an aggressive use of unconventional policies in both countries. Our results highlight the role of international policy cooperation in allowing the exchange rate to play the traditional role of shock absorber.

Series:

Working Paper No. 17/237

Subject:

English

Publication Date:

November 13, 2017

ISBN/ISSN:

9781484324844/1018-5941

Stock No:

WPIEA2017237

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

38

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