Current Account Balance of Payments in the Monetary Union:Optimal Monetary Policy

Abstract

Abstract

This paper concentrates on the asymmetric shocks in European monetary union stemming from the effect of exchange rate fluctuations on trade. In an open macro model, I have used Taylor (2001) monetary policy rule accompanied with a weighted mean mechanism to extract optimal weights for optimal monetary policy in a monetary union. Then, I have derived the nominal and real effective exchange rates, which are much more changeable than actual ones so that, will absorb the potential source of variation in the current account balance of payments