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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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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