IMF Working Papers

Unconventional Policies and Exchange Rate Dynamics

By Gustavo Adler, Ruy Lama, Juan Pablo Medina

November 13, 2017

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Gustavo Adler, Ruy Lama, and Juan Pablo Medina. Unconventional Policies and Exchange Rate Dynamics, (USA: International Monetary Fund, 2017) accessed November 21, 2024

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.

Subject: Bonds, Exchange rates, Financial institutions, Foreign exchange, Monetary policy, Real exchange rates, Unconventional monetary policies

Keywords: Bonds, Demand shock, Exchange rate, Exchange rate depreciation, Exchange rates, Foreign Exchange Intervention, FX intervention, FX intervention policy, FX reserve, Global, International Policy, Nominal exchange rate, Nominal interest rate, QE measure, QE policy, QE stimulus, Quantitative easing, Real exchange rates, Unconventional monetary policies, WP

Publication Details

  • Pages:

    38

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/237

  • Stock No:

    WPIEA2017237

  • ISBN:

    9781484324844

  • ISSN:

    1018-5941

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