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Research on exchange rates and monetary policy: an overview

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Author Info

  • Jeffery D. Amato

    (Goldman Sachs International)

  • Andrew Filardo
  • Gabriele Galati
  • Goetz von Peter
  • Feng Zhu

Abstract

This paper reviews research carried out on exchange rates and monetary policy by central banks that participated at the Autumn Meeting of Central Bank Economists on "Exchange rates and monetary policy", which the BIS hosted on 28-29 October 2004. The first part of the paper focuses on the approaches that central banks have found most useful in modelling exchange rate behaviour. We describe efforts to explain exchange rate behaviour ex post and to forecast its future evolution ex ante. We then summarise central banks' recent research on the linkage between exchange rates and inflation, output, profits and the current account. We highlight the main models and methodologies, the main empirical results and the key challenges ahead. The second part of the paper is devoted to research that examines the actual experience that countries have had in incorporating the exchange rate into their monetary policy decisions, and the main lessons learned.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 178.

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Length: 22 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:bis:biswps:178

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Related research

Keywords: Monetary Policy; International Finance; Macroeconomic Aspects of International Trade and Finance;

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References

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  1. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
  2. André Minella & Paulo Springer de Freitas & Ilan Goldfajn & Marcelo Kfoury Muinhos, 2003. "Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility," Working Papers Series 77, Central Bank of Brazil, Research Department.
  3. Adrien Verdelhan, 2010. "A Habit-Based Explanation of the Exchange Rate Risk Premium," Journal of Finance, American Finance Association, vol. 65(1), pages 123-146, 02.
  4. J.J.J. Groen, 2001. "(EURO) Exchange Rate Predictability and Monetary Fundamentals in a Small Multi-Country Panel," WO Research Memoranda (discontinued) 664, Netherlands Central Bank, Research Department.
  5. Nessén, Marianne & Söderström, Ulf, 2000. "Core Inflation and Monetary Policy," Working Paper Series 110, Sveriges Riksbank (Central Bank of Sweden).
  6. P.J.G. Vlaar, 2001. "On the Strength of the US dollar: Can it be Explained by Output Growth?," WO Research Memoranda (discontinued) 668, Netherlands Central Bank, Research Department.
  7. Geir Høidal Bjønnes & Dagfinn Rime & Haakon O. Aa. Solheim, 2004. "Liquidity provision in the overnight foreign exchange market," Discussion Papers 391, Research Department of Statistics Norway.
  8. André Minella & Paulo Springer de Freitas & Ilan Goldfajn & Marcelo Kfoury Muinhos, 2003. "Inflation targeting in Brazil: lessons and challenges," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 106-133 Bank for International Settlements.
  9. Marcelo Kfoury Muinhos & Sérgio Afonso Lago Alves & Gil Riella, 2002. "Modelo Estrutural com Setor Externo: Endogenização do Prêmio de Risco e do Câmbio," Working Papers Series 42, Central Bank of Brazil, Research Department.
  10. Otani, Akira & Shiratsuka, Shigenori & Shirota, Toyoichiro, 2003. "The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 53-81, October.
  11. Égert, Balázs & Halpern, László, 2005. "Equilibrium exchange rates in Central and Eastern Europe: A meta-regression analysis," BOFIT Discussion Papers 4/2005, Bank of Finland, Institute for Economies in Transition.
  12. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan.
  13. Cheung, Yin-Wong & Chinn, Menzie D. & Pascual, Antonio Garcia, 2005. "Empirical exchange rate models of the nineties: Are any fit to survive?," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1150-1175, November.
  14. Dieppe, Alistair & Henry, Jerome, 2004. "The euro area viewed as a single economy: how does it respond to shocks?," Economic Modelling, Elsevier, vol. 21(5), pages 833-875, September.
  15. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  16. D. Jansen & J. de Haan, 2003. "Statements of ECB Officials and their Effect on the Level and Volatility of the Euro-Dollar Exchange Rate," WO Research Memoranda (discontinued) 726, Netherlands Central Bank, Research Department.
  17. R. Macdonald & L. Ricci, 2003. "PPP and the Balassa Samuelson Effect: The Role of the DistributionSector," DNB Staff Reports (discontinued) 81, Netherlands Central Bank.
  18. David Longworth, 2002. "Inflation and the Macroeconomy: Changes from the 1980s to the 1990s," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 3-18.
  19. Eiji Fuji & Jeannine Bailliu, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Computing in Economics and Finance 2004 135, Society for Computational Economics.
  20. Meredith Beechey & Nargis Bharucha & Adam Cagliarini & David Gruen & Christopher Thompson, 2000. "A Small Model of the Australian Macroeconomy," RBA Research Discussion Papers rdp2000-05, Reserve Bank of Australia.
  21. Edison, Hali J. & Gagnon, Joseph E. & Melick, William R., 1997. "Understanding the empirical literature on purchasing power parity: the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 16(1), pages 1-17, February.
  22. Massimiliano Pisani, 2011. "Financial Openness and Macroeconomic Instability in Emerging Market Economies," Open Economies Review, Springer, vol. 22(3), pages 501-532, July.
  23. M S Mohanty & Marc Klau, 2001. "What determines inflation in emerging market economies?," BIS Papers chapters, in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 1-38 Bank for International Settlements.
  24. Matteo Bugamelli & Roberto Tedeschi, 2008. "Pricing-to-Market and Market Structure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 155-180, 04.
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Citations

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Cited by:
  1. Bank for International Settlements, 2007. "Evolving banking systems in Latin America and the Caribbean: challenges and implications for monetary policy and financial stability," BIS Papers, Bank for International Settlements, number 33, May.
  2. Forte, Antonio, 2009. "The stability of the inflation rate in the Euro area: the role of Globalization and labour market," MPRA Paper 16587, University Library of Munich, Germany.
  3. Antonio Forte, 2009. "The pass-through effect: a twofold analysis," EERI Research Paper Series EERI_RP_2009_08, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Bonpasse, Morrison, 2006. "The Single Global Currency: Common Cents for the World," MPRA Paper 1175, University Library of Munich, Germany.
  5. Robert Neil McCauley, 2006. "Understanding monetary policy in Malaysia and Thailand: objectives, instruments and independence," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 172-198 Bank for International Settlements.
  6. Bharat Chadha, 2007. "Impact of U.S. Federal Interest Rate and Movement of MSCI on Indian Capital Markets," Working Papers id:1024, eSocialSciences.
  7. Bonpasse, Morrison, 2007. "The Single Global Currency - Common Cents for the World (2007 Edition)," MPRA Paper 5879, University Library of Munich, Germany.
  8. Bonpasse, Morrison, 2009. "The single global currency - common cents for the world (2008 Edition)," MPRA Paper 14756, University Library of Munich, Germany.

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