The article explores how expectations about exchange rates affect the impact of monetary policy in open economies. By using a two-country model, the researchers show that if traders form certain types of exchange rate expectations, the effects of monetary policy shocks can be altered. Specifically, if "technical traders" have regressive expectations, a permanent expansionary monetary policy shock can lead to a temporary decline in output. Additionally, the impact of a temporary monetary policy shock is amplified when technical traders hold regressive exchange rate expectations.