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Monetary policy and exchange rate dynamics in the Spanish economy

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  • Javier Andrés

    ()
    (University of Valencia, Edificio Oriental, Avénida de los Naranjos, E-46022 Valencia, Spain European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt/Main, Germany Research Department, Banco de España, Alcalá 50, E-28014 Madrid, Spain)

  • Ricardo Mestre

    ()
    (University of Valencia, Edificio Oriental, Avénida de los Naranjos, E-46022 Valencia, Spain European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt/Main, Germany Research Department, Banco de España, Alcalá 50, E-28014 Madrid, Spain)

  • Javier Vallés

    ()
    (University of Valencia, Edificio Oriental, Avénida de los Naranjos, E-46022 Valencia, Spain European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt/Main, Germany Research Department, Banco de España, Alcalá 50, E-28014 Madrid, Spain)

Abstract

As the Spanish economy gets more integrated in international markets, the real exchange rate becomes a key determinant of the monetary transmission. In this paper we trace out the dynamic response of prices, output and the exchange rate following a monetary policy shock. We estimate a structural VAR model whose identification scheme is based on the long run properties common to a large class of models. The results suggest that a small model with efficient asset markets plus nominal inertia and long run monetary neutrality, captures the essential features of the monetary transmission mechanism in Spain. The interest rate shock is well identified and the exchange rate overshoots its long run value. There are no signs of liquidity puzzle nor of price puzzle or exchange rate puzzle either.

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Bibliographic Info

Article provided by Springer in its journal Spanish Economic Review.

Volume (Year): 1 (1999)
Issue (Month): 1 ()
Pages: 55-77

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Handle: RePEc:spr:specre:v:1:y:1999:i:1:p:55-77

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Postal: Universidad del País Vasco; DFAE II; Avenida Lehendakari Aguirre, 83; 48015 Bilbao; Spain
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Related research

Keywords: Structural VAR; monetary shocks; exchange rate; overshooting;

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Cited by:
  1. Monticello, Carlo & Tristani, Oreste, 1999. "What does the single monetary policy do? A SVAR benchmark for the European Central Bank," Working Paper Series 0002, European Central Bank.
  2. Pedro José Pérez Vázquez, 2003. "Fuentes de variabilidad en las principales economías occidentales," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 565-591, September.

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