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Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of The Exchange Rate

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  • Fank Smets

Abstract

In the identified VAR literature the role of the exchange rate in measuring monetary policy shocks has often been neglected. However, many open economies find it useful to target the exchange rate. In such a regime exchange rate innovations will better capture domestic monetary policy shocks. This paper first estimates the weight on the ECU exchange rate in France, Germany and Italy under the ERM regime. Next, these weights are used to identify a typical monetary policy shock in these countries and analyse its effects on output, inflation, the interest rate and the exchange rate.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 133 (1997)
Issue (Month): III (September)
Pages: 597-616

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Handle: RePEc:ses:arsjes:1997-iii-16

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  1. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series 10, Institute for Advanced Studies.
  2. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  3. Arthur Grimes & Jason Wong, 1992. "The role of the exchange rate in New Zealand monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  4. Grilli, Vittorio & Roubini, Nouriel, 1996. "Liquidity models in open economies: Theory and empirical evidence," European Economic Review, Elsevier, vol. 40(3-5), pages 847-859, April.
  5. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  6. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
  7. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
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Cited by:
  1. Artis, Michael J & Ehrmann, Michael, 2000. "The Exchange Rate - A Shock-Absorber or Source of Shocks? A Study of Four Open Economies," CEPR Discussion Papers 2550, C.E.P.R. Discussion Papers.
  2. Sánchez, Marcelo, 2005. "The link between interest rates and exchange rates: do contractionary depreciations make a difference?," Working Paper Series 0548, European Central Bank.
  3. F. Smets & R. Wouters, 1999. "The Exchange Rate and the Monetary Transmission Mechanism in Germany," DNB Staff Reports (discontinued) 35, Netherlands Central Bank.
  4. Lance A Fisher & Syeon-seung Huh & Adrian Pagan, 2013. "Econometric Issues when Modelling with a Mixture of I(1) and I(0) Variables," NCER Working Paper Series 97, National Centre for Econometric Research.
  5. Paolo Chiades & Leonardo Gambacorta, 2004. "The Bernanke and Blinder Model in an Open Economy: The Italian Case," German Economic Review, Verein für Socialpolitik, vol. 5(1), pages 1-34, 02.
  6. 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.
  7. Mads Kieler & Tuomas Saarenheimo, 1998. "Differences in monetary policy transmission? A case not closed," European Economy - Economic Papers 132, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Tomas Havranek & Marek Rusnak, 2012. "Transmission Lags of Monetary Policy: A Meta-Analysis," Working Papers 2012/10, Czech National Bank, Research Department.
  9. Wojciech Maliszewski, 1999. "VAR-ing Monetary Policy in Poland," CASE Network Studies and Analyses 0188, CASE-Center for Social and Economic Research.
  10. Stefano Neri, 2004. "Monetary policy and stock prices: theory and evidence," Temi di discussione (Economic working papers) 513, Bank of Italy, Economic Research and International Relations Area.
  11. Giuseppe De Arcangelis & Giorgio Di Giorgio, 1999. "Monetary policy shocks and transmission in Italy: A VAR analysis," Economics Working Papers 446, Department of Economics and Business, Universitat Pompeu Fabra.

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