Comparing Monetary Policy Rules In A Small Open Economy Framework: An Empirical Analysis Using Bayesian Techniques

This paper examines the role of exchange rate changes in the monetary policy for the Euro Area. Moreover, it compares different Taylor-type policy rules with respect to the numerical results as well as the impulse responses to exogenous shocks and the ¯t of the different data model specifications when using the underlying data. Overall, a monetary policy rule which includes the expected inflation rate as well as the output gap performs best and supports a possible role of exchange rate changes in the Euro Area's monetary policy.