قوانین سیاست های پولی ساده و عدم اطمینان نرخ ارز

We analyze the performance and robustness of some common simple rules for monetary policy in a New-Keynesian open-economy model under different assumptions about the exchange rate model. Adding the exchange rate to an optimized Taylor rule (that responds to CPI inflation) gives only small improvements in terms of economic stability in most model configurations. The Taylor rule is also slightly more robust to uncertainty about the exchange rate model than are rules that respond to the rate of exchange rate depreciation. Our results thus indicate that the Taylor rule is sufficient to stabilize a small open economy, also under exchange rate model uncertainty

In open economies, the exchange rate is an important element in the transmission of monetary policy. In addition to the standard aggregate demand and expectations channels in closed economies, the exchange rate introduces a number of new channels in the monetary transmission mechanism (see also Svensson, 2000): (i) the real exchange rate affects the relative price between domestic and foreign goods, and thus contributes to the aggregate demand channel; (ii) the exchange rate affects consumer prices directly via the domestic currency price of imports; and (iii) the exchange rate affects the price of imported intermediate goods, and thus the pricing decisions of domestic firms. It would therefore seem natural to include the exchange rate as an indicator for monetary policy in an open economy. The recent years have also seen a surge in research concerning monetary policy in open economies.1 However, movements in the exchange rate are not very well understood in practice. In particular, the parity conditions typically used in theoretical analyses—uncovered interest rate parity (UIP) and purchasing power parity (PPP)—do not find much support in empirical studies.2 Furthermore, the equilibrium real exchange rate is not easily observed by central banks. Given the high degree of uncertainty regarding exchange rate determination, a challenge for monetary policymakers in open economies is to design policy strategies that are reasonably robust to alternative specifications of the exchange rate model.3 The main objective of this paper, therefore, is to study the role of the exchange rate as an indicator for monetary policy when there is uncertainty about the exchange rate model. The analysis is performed in three steps: we first analyze a “baseline model” to see whether extending an optimized Taylor (1993) rule to include a measure of the exchange rate leads to any improvement in terms of a standard intertemporal loss function for the central bank. Second, we perform the same analysis in a variety of model configurations, to see how sensitive the results are to the exact specification of the model. Third, we examine the robustness of the different policy rules to model uncertainty by analyzing the outcome when using the optimized policy rules from the baseline model in the alternative model specifications. The analysis is performed in a New-Keynesian model of a small open economy, incorporating inertia and forward-looking behavior in the determination of both output and inflation. Our framework allows for several modifications of the model determining the exchange rate and its influence on the domestic economy. These modifications are introduced in three broad categories. First, we allow for longer-term departures from PPP than what is due to nominal rigidities by considering varying degrees of exchange rate pass-through onto import prices and thus to CPI inflation. The departure from PPP is motivated by the overwhelming evidence of pricing-to-market and incomplete exchange rate pass-through.4 Second, we study different departures from the rational expectations UIP condition, in the form of non-rational exchange rate expectations and varying behavior of the risk premium on foreign exchange. The first departure from rational expectations UIP is also motivated by empirical evidence. Although most evidence from surveys of expectations in the foreign exchange market point to expectations not being completely rational (e.g., Frankel and Froot, 1987), rational expectations remain the workhorse assumption about expectation formation in structural and theoretical policy models. We extend such analyses by considering exchange rate expectations that are partially adaptive. The second departure from UIP considers the behavior of the foreign exchange risk premium, by allowing for varying degrees of risk premium persistence. Third, we analyze the consequences of uncertainty concerning the equilibrium real exchange rate. Measuring the equilibrium real exchange rate is a difficult task for policymakers, similar to measuring the equilibrium real interest rate or the natural level of output. For this reason, rules that respond to the deviation of the real exchange rate from its equilibrium (or steady-state) level may not be very useful in practice. In some versions of the model, we try to capture such uncertainty by letting the central bank respond to a noisy measure of the real exchange rate. Our results indicate that the gains from extending an optimized Taylor rule to include a measure of the exchange rate (the nominal or real rate of depreciation or the level of the real exchange rate) are small in most specifications of the model. This result finds support in several other studies. Although Ball (1999) shows that the real exchange rate should be included in the efficient policy rule in a backward-looking model, the improvement tends to be small (see also Taylor, 2001). In optimizing open-economy models, Clarida et al., 2001 and Clarida et al., 2002 find no role for the exchange rate in optimal rules, while Benigno and Benigno (2001) find some improvement from including the exchange rate in a Taylor rule, but only if interest rate fluctuations enter the welfare function. Likewise, Batini et al. (2003) report fairly small gains from including the exchange rate both in standard Taylor rules and rules that include the forecast of inflation, and Adolfson (2002) finds very small improvements from including exchange rate terms in the Taylor rule in a model with incomplete exchange rate pass-through. In an empirical model of the Australian economy, Dennis (2003) reports some improvements from including the exchange rate in a standard Taylor rule, but not in a forecast-based rule. Finally, using 12 different models of the Canadian economy, Côté et al. (2002) find that rules including the exchange rate typically do not perform well, and may lead to worse outcomes than the standard Taylor rule. In his survey, Taylor (2001) concludes that the standard Taylor rule in an open economy includes an indirect response to the exchange rate since inflation and the output gap are strongly affected by the exchange rate. Therefore, a separate response to the exchange rate will yield only marginal improvements. Our results support this view for a wide range of exchange rate model configurations. We also show that policy rules that respond to the rate of exchange rate depreciation are more sensitive than the Taylor rule to model uncertainty, in particular with respect to the formation of exchange rate expectations. This result appears to be new to the literature. We conclude that in our open-economy model the output gap and annual CPI inflation seem sufficient as indicators for monetary policy also under uncertainty about the exchange rate model. The remainder of the paper is outlined as follows. The next section presents the model framework and discusses the monetary transmission mechanism as well as the policy rules and objectives of the monetary authorities. Section 3 briefly discusses our methodology and the calibration of the model. Section 4 analyses the performance of policy rules in different specifications of the model and the robustness of policy rules to model uncertainty. Finally, Section 5 contains some concluding remarks.

The exchange rate is an important part of the monetary transmission mechanism in an open economy. Therefore, it may seem natural to include some measure of the exchange rate in the central bank's policy rule, in order to better stabilize the economy. At the same time, the model determining the exchange rate and its effects on the economy is inherently uncertain. This paper therefore analyses the gains from including the exchange rate in an optimized Taylor rule, how these gains vary with the specification of the exchange rate model, and how robust different policy rules are to uncertainty about the exchange rate model. For most model configurations, we find that including the exchange rate in an optimized Taylor rules gives little improvement in terms of economic stability. Furthermore, the policy rules that respond to real and nominal exchange rate depreciation are slightly more sensitive to model uncertainty than the traditional Taylor rule, in particular with respect to the formation of exchange rate expectations. Our study lends more support to a policy rule with a small response to the level of the real exchange rate, although this rule is typically very similar to the Taylor rule. An interesting finding is that the optimal coefficient on exchange rate movements is often negative: a depreciation of the exchange rate should be met by a monetary expansion relative to the Taylor rule. This result follows from a conflict between the direct and the indirect exchange rate channels. Our first set of results finds support in many other studies concentrating on the role of the exchange rate in monetary policy rules within a given model. Ball (1999) shows that the real exchange rate should be included in the efficient policy rule in a backward-looking model, but the improvement tends to be small (see also Taylor, 2001). In optimizing open-economy models, Clarida et al., 2001 and Clarida et al., 2002 find no role for the exchange rate in optimal rules, since in their model the real exchange rate is proportional to the output gap. Benigno and Benigno (2001) find some improvement from including the exchange rate in a Taylor rule with domestic inflation, but only if interest rate fluctuations enter the welfare function. Batini et al. (2003) report fairly small gains from including the exchange rate both in standard Taylor rules and rules that include the forecast of inflation. In an optimizing model with incomplete exchange rate pass-through, Adolfson (2002) finds very small improvements from including exchange rate terms in the Taylor rule. In more empirically oriented work, Dennis (2003) reports some improvements from including the exchange rate in a standard Taylor rule, but not in a forecast-based rule, using a model of the Australian economy. Finally, Côté et al. (2002) examine different policy rules in 12 models of the Canadian economy, and find that rules including the exchange rate typically do not perform well, and may lead to worse outcomes than the standard Taylor rule. Thus, the literature seems to conclude that the gains from including the exchange rate in monetary policy rule within a given model are small, and sometimes exchange rate based rules can even reduce welfare. Our results confirm this finding for a wide range of model specifications. The main contribution of this paper is to show that rules that include the rate of exchange rate depreciation are more vulnerable to model uncertainty than are the standard Taylor rule and a rule that includes the level of the real exchange rate. This result seems to be new to the literature: while the literature evaluating the role of the exchange rate in policy rules is fairly large, there are to our knowledge no studies of the robustness of these rules to model uncertainty. This appears to be a field worthy of more work in the future. Since the exchange rate model is perhaps the most uncertain part of the monetary transmission mechanism, we believe that the design of robust monetary policy in the face of exchange rate model uncertainty is a central issue in open economies.