Short-Run Independence of Monetary Policy under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates

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Short-Run Independence of Monetary Policy under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates

Author Info

Ohanian, Lee E
Stockman, Alan C

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Lee Edward Ohanian

Abstract

This paper examines the effects of money supply changes on exchange rates, interest rates, and production in an optimizing two-country model in which some sectors of the economy have predetermined nominal prices in the short run and other sectors have flexible prices. Money supply shocks have liquidity effects both within and across countries and induce a cross-country real-interest differential. The model predicts that liquidity effects are highly nonlinear and are not likely to be captured well empirically by linear models, particularly those involving only a single country. A striking implication of the model is that countries have a significant degree of short-run independence of monetary policy even under pegged exchange rates. Copyright 1997 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 29 (1997)
Issue (Month): 4 (November)
Pages: 783-806
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Handle: RePEc:mcb:jmoncb:v:29:y:1997:i:4:p:783-806

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Article
- Lee E. Ohanian & Alan C. Stockman, 1997. "Short-run independence of monetary policy under pegged exchange rates and effects of money on exchange rates and interest rates," Proceedings, Federal Reserve Bank of Cleveland, pages 783-814.
Paper
- Alan C. Stockman & Lee E. Ohanian, 1993. "Short-Run Independence of Monetary Policy Under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates," NBER Working Papers 4517, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

Cited by:
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James R.Lothian & Cornelia H. McCarthy, 2001. "International Transmission under Floating Exchange Rates," International Finance 0107004, EconWPA. [Downloadable!]
Ivan Paya & David A. Peel, 2005. "The Process Followed By Ppp Data. On The Properties Of Linearity Tests," Working Papers. Serie AD 2005-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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- Ivan Paya & David A. Peel, 2005. "The process followed by PPP data. On the properties of linearity tests," Applied Economics, Taylor and Francis Journals, vol. 37(21), pages 2515-2522, December. [Downloadable!] (restricted)
V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 223, Federal Reserve Bank of Minneapolis. [Downloadable!]
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- V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 277, Federal Reserve Bank of Minneapolis. [Downloadable!]
- Chari, V V & Kehoe, Patrick J & McGrattan, Ellen R, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Blackwell Publishing, vol. 69(3), pages 533-63, July.
V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1997. "Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles," NBER Working Papers 5876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Harris Dellas, 2003. "Monetary Policy in Open Economies under Imperfect Information," Working Papers 072003, Hong Kong Institute for Monetary Research. [Downloadable!]
Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories," NBER Working Papers 5197, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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- Rebelo, Sérgio, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," CEPR Discussion Papers 1220, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Rebelo, S. & Vegh, C.A., 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," RCER Working Papers 405, University of Rochester - Center for Economic Research (RCER).
- Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188 National Bureau of Economic Research, Inc. [Downloadable!]
Krishna R. Akikina & Hamed Al-Hoshan, 2003. "Independence of monetary policy under fixed exchange rates: the case of Saudi Arabia," Applied Economics, Taylor and Francis Journals, vol. 35(4), pages 437-448, January. [Downloadable!] (restricted)
Philip R. Lane & Roberto Perotti, 2001. "The Importance of Composition of Fiscal Policy: Evidence from Different Exchange Rate Regimes," Trinity Economics Papers 200116, Trinity College Dublin, Department of Economics. [Downloadable!]
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- Lane, Philip R. & Perotti, Roberto, 2003. "The importance of composition of fiscal policy: evidence from different exchange rate regimes," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2253-2279, September. [Downloadable!] (restricted)
Vilmunen, Jouko, 1998. "Macroeconomic Effects of Looming Policy Shifts: Non-falsified Expectations and Peso Problems," Research Discussion Papers 13/1998, Bank of Finland. [Downloadable!]
David Peel & Ivan Paya, 2006. "On the relationship between Nominal Exchange Rates and domestic and foreign prices," Working Papers 004215, Lancaster University Management School, Economics Department. [Downloadable!]
Other versions:
- Ivan Paya & David A. Peel, 2007. "On the relationship between nominal exchange rates and domestic and foreign prices," Applied Financial Economics, Taylor and Francis Journals, vol. 17(2), pages 105-117, January. [Downloadable!] (restricted)

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