Advanced Search
MyIDEAS: Login to save this paper or follow this series

Exchange rates, monetary policy statements, and uncovered interest parity: before and after the zero lower bound

Contents:

Author Info

  • Michael T. Kiley

Abstract

While uncovered interest parity (UIP) fails unconditionally, UIP conditional on monetary policy actions remains a cornerstone of macroeconomic models used for monetary policy analysis. We posit that monetary policy actions are partially revealed by FOMC statements and propose a new identification strategy to uncover the degree to which such policy actions induce comovement in exchange rates and long-term interest rates consistent with uncovered interest parity. We reach three conclusions. First, there is evidence in favor of UIP at long horizons, conditional on monetary policy actions, for Dollar/Euro and Dollar/Yen exchange rates. Second, short-run movements in exchange rates following monetary policy surprises are consistent with the overshooting prediction of Dornbusch (1976), although our approach cannot test UIP at short horizons. Finally, we examine the degree to which monetary policy statements since the onset of the zero-lower bound (ZLB) on the short-term interest rate in the United States have engendered different comovement between long-term interest rates and exchange rates and find little evidence for a change in relationships.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.federalreserve.gov/pubs/feds/2013/201317/201317abs.html
Download Restriction: no

File URL: http://www.federalreserve.gov/pubs/feds/2013/201317/201317pap.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2013-17.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:fip:fedgfe:2013-17

Contact details of provider:
Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page: http://www.federalreserve.gov/
More information through EDIRC

Order Information:
Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Han Chen & Vasco Cúrdia & Andrea Ferrero, 2011. "The macroeconomic effects of large-scale asset purchase programs," Staff Reports 527, Federal Reserve Bank of New York.
  2. Michael T. Kiley, 2012. "The aggregate demand effects of short- and long-term interest rates," Finance and Economics Discussion Series 2012-54, Board of Governors of the Federal Reserve System (U.S.).
  3. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
  4. Refet Gurkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," Macroeconomics 0504013, EconWPA.
  5. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  6. Carlo Rosa, 2012. "How "unconventional" are large-scale asset purchases? The impact of monetary policy on asset prices," Staff Reports 560, Federal Reserve Bank of New York.
  7. Boivin, Jean & Kiley, Michael T. & Mishkin, Frederic S., 2010. "How Has the Monetary Transmission Mechanism Evolved Over Time?," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 8, pages 369-422 Elsevier.
  8. Yuriy Gorodnichenko & Matthew D. Shapiro, 2006. "Monetary Policy When Potential Output is Uncertain: Understanding the Growth Gamble of the 1990s," NBER Working Papers 12268, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2013-17. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.