Announced Regime Switch: Optimal Policy for Transition Period

Abstract

The novelty of this article is its theoretical framework, which allows for modeling of an announced change in the type of monetary regime operated. The behavior of a small open economy that has announced the adoption of a monetary policy regime of offsetting nominal exchange rate changes is analyzed. The optimal monetary regime for the transition period and its effects on macroeconomic stability are studied. Moreover, the evolution of business cycle synchronization over the transition is analyzed. * The views expressed in this article are those of the author and do not necessarily reflect those of the Czech National Bank.

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