We study exchange rate dynamics under cooperative and self-oriented policies in a two-country DSGE model
with unconventional monetary and exchange rate policies. The cooperative solution features a large exchange
rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy
instruments. Self-oriented policies (Nash equilibrium), however, entail limited exchange rate movements and an
aggressive use of unconventional policies in both countries. Our results highlight the role of international policy
cooperation in allowing the exchange rate to play the traditional role of shock absorber.