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The Impact of Monetary Policy on the Bilateral Exchange Rate: Chile Versus the United States

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  • Jeromin Zettelmeyer

Abstract

This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the variation in the exchange rate following a policy announcement on variations in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month Treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.

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File URL: http://www.bcentral.cl/estudios/revista-economia/2003/agosto/vol6n2ago200329_43.pdf
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Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 6 (2003)
Issue (Month): 2 (August)
Pages: 29-43

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Handle: RePEc:chb:bcchec:v:6:y:2003:i:2:p:29-43

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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  2. Thomas Philippon & Jeromin Zettelmeyer & Eduardo Borensztein, 2001. "Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?," IMF Working Papers 01/1, International Monetary Fund.
  3. Nouriel Roubini & Vittorio Grilli, 1995. "Liquidity Models in Open Economies: Theory and Empirical Evidence," NBER Working Papers 5313, National Bureau of Economic Research, Inc.
  4. Fabio C. Bagliano & Carlo A. Favero, . "Information from financial markets and VAR measures of monetary policy," Working Papers 135, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  6. Felipe G. Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers Central Bank of Chile 152, Central Bank of Chile.
  7. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
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