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    The Real Exchange Rate in Taylor Rules: A Re-Assessment

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    TaylorRulepaper_Names_1_July2017.pdf (1.042Mb)
    Author
    Guender A
    Froyen RT
    Date
    2016
    Permanent Link
    http://hdl.handle.net/10092/15351

    Examining three flexible inflation targeting strategies, we find that a small concern for real exchange rate stability as a policy goal matters. First, it warrants the inclusion of the real exchange rate in Taylor rules and, second, it is sufficient to improve the performance of Taylor rules relative to optimal policy. Gains are substantial for domestic and REX inflation targets because a small weight on real exchange rate fluctuations makes optimal policy less aggressive. The gains under CPI inflation targeting are considerably lower.

    Subjects
    CPI
     
    Domestic
     
    REX Inflation Targeting
     
    Taylor-Type Rules
     
    Timeless Perspective
     
    Real Exchange Rate
     
    Field of Research::14 - Economics::1402 - Applied Economics::140212 - Macroeconomics (incl. Monetary and Fiscal Theory)
     
    Field of Research::14 - Economics::1402 - Applied Economics::140207 - Financial Economics
     
    Field of Research::14 - Economics::1402 - Applied Economics::140210 - International Economics and International Finance
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    • Business and Law: Working Papers [188]

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