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Should the ECB Adopt an Explicit Exchange Rate Target?

Author

Listed:
  • Petri Mäki-Fränti

    (School of Management, University of Tampere)

Abstract

This paper investigates with a structural, quantitative macro model, whether the ECB should include the real exchange rate into its reaction function. The problem is considered from viewpoints of both the whole monetary union and a single member country with a national economy more open than the union economy on average. According to the results, the member country would benefit from the exchange rate stabilizing more than the rest of the union. It appears however, that the asymmetries of the external shocks facing the economies may be a more important factor behind the larger volatility of the inflation and output of the member country than the structural differences.

Suggested Citation

  • Petri Mäki-Fränti, 2002. "Should the ECB Adopt an Explicit Exchange Rate Target?," Working Papers 0210, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0210
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    File URL: http://urn.fi/urn:isbn:951-44-5364-6
    File Function: First version, 2002
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    More about this item

    Keywords

    Euro-area; monetary policy rules; optimal currency areas;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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