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Governments do understand that they should not argue destructively about monetary rules and monetary policy.
Quantitatively, we find that the welfare differences across different monetary rules (exchange rate regimes) are very small.
Either way, interest rates should go up.For central bankers who like straightforward monetary rules, asset prices are a nuisance.
When optimal monetary rules can target both employment and exchange rates however, a cooperative exchange rate peg leads to lower welfare.
Therefore, whether fixing the exchange rate involves a welfare cost depends critically upon the way in which monetary rules are designed.
By design, the currency's strict fiscal and monetary rules would force the stronger economies to balance out the weak, pushing them toward ever closer cooperation.
Similar(42)
"The Case for a Monetary Rule," Newsweek, February 7, p. 67.
Living With Inflation in the United States: A New Monetary Rule for China?
One monetarist policy conclusion is the rejection of fiscal policy in favour of a "monetary rule".
For this reason, policymakers might change their judgment about what monetary policy rules constitute reasonable benchmarks, or, over time, they might develop a procedure for revising the monetary rule.
Under plausible conditions, as domestic rules improve and international financial markets become more complete, the Nash and cooperative monetary rule setting games converge.
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