Economics, Econometrics and Finance
8 years ago

Inflation targeting shifts power of interest rates on exchange rates

RePEc: Research Papers in Economics
The NOK/euro exhange rate after inflation targeting: : the interest rate rules
Roger Bjørnstad, Eilev S. Jansen

Paper Summary

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Norway switched from targeting exchange rates to targeting inflation in 2001. This change means that interest rates now affect the economy more directly, rather than just being used to stabilize the exchange rate. However, the long-term relationship between interest rates and exchange rates remains the same. This shows that the basic mechanism for balancing exchange rates stays consistent, even with different monetary policies in place.