POLICIES FOR EXCHANGE-RATE STABILIZATION ON THE UK TREASURY MODEL

In the Group of Seven, monetary and fiscal policies are evolving for the stabilization of exchange rates within bands which may occasionally be adjusted. The policies and the adjustments of the bands take into account other indicators of objectives, performance and intermediate targets. In this paper policy optimization methods are used on the UK Treasury model with consistent expectations and with current data, to demonstrate the apparatus the Treasury has available to evolve and implement such policies, and to illustrate how UK policies may develop. The methods give sufficient parametrization of the dynamics of one country's policies to be fed into the evolution of partially cooperative international policies. © 1990.