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Rational exchange rate and price expectations under different exchange rate regimes in Finland

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  • Esko Aurikko

    (Bank of Finland)

Abstract

In this paper a small aggregative model of the Finnish economy with rational exchange rate and price expectations is specified and estimated with quarterly data. Optimal exchange rate regimes are assessed by simulating the effects of various unanticipated and permanent shocks. According to the simulation results, fixed exchange rates seem to insulate the domestic economy from monetary shocks while floating rates are preferable if shocks are real.

Suggested Citation

  • Esko Aurikko, 1989. "Rational exchange rate and price expectations under different exchange rate regimes in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 2(1), pages 20-30, Spring.
    • Handle: RePEc:fep:journl:v:2:y:1989:i:1:p:20-30
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    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep19891_2.pdf
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    References listed on IDEAS

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    1. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    2. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-1185, July.
    3. Aurikko, Esko, 1985. "Active pegging, rational expectations, and autonomy of monetary policy," Economics Letters, Elsevier, vol. 17(1-2), pages 149-152.
    4. Richard C. Marston, 1983. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc.
    5. Alpo Willman, 1989. "If the markka floated : simulating the BOF4 model with fixed and floating exchange rates," Finnish Economic Papers, Finnish Economic Association, vol. 2(1), pages 3-19, Spring.
    6. Marston, Richard C., 1985. "Stabilization policies in open economies," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 17, pages 859-916, Elsevier.
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    Cited by:

    1. repec:zbw:bofrdp:1990_005 is not listed on IDEAS
    2. Aurikko, Esko, 1990. "Floating exchange rates and capital mobility," Research Discussion Papers 5/1990, Bank of Finland.
    3. Aurikko, Esko, 1990. "Floating exchange rates and capital mobility," Bank of Finland Research Discussion Papers 5/1990, Bank of Finland.

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