Working Paper No. 637

On the Link between Exchange-Rate Regimes and Monetary-Policy Autonomy: The European Experience

Published: March 15, 2005Pages: 39Keywords: Exchange Rate Regimes; Monetary Policy Autonomy; Capital Mobility JEL-codes: E42; E52; F41

On the Link between Exchange-Rate Regimes and Monetary-Policy Autonomy: The European Experience Jens Forssbæck and Lars Oxelheim


We investigate monetary-policy autonomy under different exchange-rate regimes in small, open European economies during the 1980s and 1990s. We find no systematic link between ex post monetary-policy autonomy and exchange rate regimes. This result is enforced for countries/periods with alternative nominal targets. Our interpretation of the results is that over the medium and long term following an ‘independent’ target for monetary policy, which does not deviate much from the targets of those countries to which one is closely financially integrated, is as constraining as locking the exchange rate to some particular level.

 

Lars Oxelheim

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Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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