Exchange rate determination and optimal economic policy under various exchange rate regimes (Q1202122)

In this monograph the author develops a structural model of exchange rate determination. It is estimated for the Dutch economy with quarterly data for the period 1970(1) to 1980(4). Exchange rate expectations are approximated by rolling regressions. The equations for financial assets are specified according to the multiasset partial adjustment model. The non-financial sector comprises the labour market, the goods market with international trade relations, and a wage-price sector. Interest rates and the exchange rate are derived from the equilibrium conditions. Furthermore, on the basis of the estimated model optimal exchange rate parity rules are derived by optimal control techniques.