Research on exchange rates and monetary policy: an overview

This paper reviews research carried out on exchange rates and monetary policy by central banks that participated at the Autumn Meeting of Central Bank Economists on ""Exchange rates and monetary policy"", which the BIS hosted in October 2004. The first part of the paper focuses o...

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Bibliographic Details
Published in:Policy File 2005
Main Authors: Amato, Jeffery, Filardo, Andrew, Galati, Gabriele, Peter, Goetz von, Zhu, Feng
Format: Report
Language:English
Subjects:
Bank for International Settlements
Banking/Finance
Online Access:Request full text
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Summary:This paper reviews research carried out on exchange rates and monetary policy by central banks that participated at the Autumn Meeting of Central Bank Economists on ""Exchange rates and monetary policy"", which the BIS hosted in October 2004. The first part of the paper focuses on the approaches that central banks have found most useful in modeling exchange rate behavior. We describe efforts to explain exchange rate behaviour ex post and to forecast its future evolution ex ante. We then summarise central banks' recent research on the linkage between exchange rates and inflation, output, profits and the current account. We highlight the main models and methodologies, the main empirical results and the key challenges ahead. The second part of the paper is devoted to research that examines the actual experience that countries have had in incorporating the exchange rate into their monetary policy decisions, and the main lessons learned.