| Keith Sill, Federal Reserve Bank of Philadelphia Jeff Wrase, Federal Reserve Bank of Philadelphia |
| Exchange Rates, Monetary Policy Regimes, and Beliefs |
| Session: C-8-3 Monday 14 August 2000 by Wrase, Jeff |
| This paper investigates an international monetary business-cycle model in which agents face monetary policy processes that incorporate regime shifts. In any period, agents cannot directly observe the policy regime, but, instead, form beliefs that are updated through Bayesian learning. Monetary policy processes for the U.S. and an aggregate of OECD countries are estimated using Hamilton's maximum likelihood, Markov-switching procedure. The dynamic, general equilibrium open-economy model that we construct is solved by numerical approximation and parameterized using, in part, estimates of the policy processes which allow for calibration of the belief process employed by agents in the model. Quantiative properties of data drawn from simulations of the model are compared with properties of data drawn from actual economies on exchange rates and key macroeconomic variables. |
| Submitted paper full-text in .pdf |