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dc.contributor.authorCORSETTI, Giancarlo
dc.contributor.authorDEDOLA, Luca
dc.contributor.authorLEDUC, Sylvain
dc.identifier.citationFlorence : European University Institute, 2022en
dc.description.abstractHow should monetary policy respond to excessive capital in‡ows that appreciate the currency, widen the external de…cit and cause overheating? Using the workhorse open-macro model, we derive a quadratic approximation of the utility-based global loss function in incomplete market economies, and solve for the optimal targeting rules under cooperation. The optimal monetary stance is expansionary if the exchange rate pass-through (ERPT) on import prices is complete, contractionary if nominal rigidities reduce the ERPT. Excessive capital in‡ows, however, may lead to currency undervaluation instead of overvaluation for some parameter values. The optimal stance is then invariably expansionary to support domestic demand.en
dc.publisherEuropean University Instituteen
dc.relation.ispartofseriesEUI RSCen
dc.relation.ispartofseriesPierre Werner Chair Programme on Monetary Unionen
dc.subjectCurrency misalignmentsen
dc.subjectTrade imbalancesen
dc.subjectAsset markets and risk sharingen
dc.subjectOptimal targeting rulesen
dc.subjectInternational policy cooperationen
dc.titleExchange rate misalignment and external imbalances : what is the optimal monetary policy response?en
dc.typeWorking Paperen
dc.rights.licenseAttribution 4.0 International*

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Attribution 4.0 International
Except where otherwise noted, this item's license is described as Attribution 4.0 International