This PhD thesis is an empirical research of a monetary policy rule for a small open economy model, taking Switzerland as a case-study. There are three main goals. The first is to estimate key unobserved variables - potential output, the output gap, equilibrium real exchange rate, the real exchange rate gap and the natural rate of interest - that play a crucial role in the conduct of monetary policy. The second is to test and estimate several simple models of monetary rules to assess the role for an exchange rate variable in a monetary rule in a small open economy model. Thirdly, as monetary policy change over time, time-varying regressor coefficients are estimated for a simple monetary policy rule and the uncertainty related to time-varying parameters is assessed as well as its impact on the economy. The methodology used in the three chapters is the Kalman filter signal extraction technique