This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Open Economy Codependence: U.S. Monetary Policy and Interest Rate Pass-through

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
John C. Bluedoen
Christopher Bowdler

Additional information is available for the following registered author(s):

Abstract

We analyze the international transmission of interest rates under pegged and non-pegged exchange rate regimes, demonstrating that transmission depends upon the informational properties of a base country`s interest rate change. We differentiate between interest rate movements which are predictable/unpredictable and dependent/independent (i.e., a function of non-monetary factors such as cost-push inflation). Under capital mobility, we show that predictable or dependent interest rate changes should elicit interest rate pass-through for an imperfectly credible peg that is less than unity, whilst interest rate changes that are unpredictable and independent should elicit pass-through greater than unity. Using a real-time identification of unpredictable and independent U.S. federal funds rate changes, we provide evidence consistent with these propositions. When the federal funds rate change is unpredictable and independent, the joint hypothesis of unit within-month pass-through to pegs and zero within-month pass-through to non-pegs cannot be rejected. The same hypothesis is strongly rejected following actual, aggregate federal funds rate changes which include predictable and dependent components. In a dynamic context, we find that maximum interest rate pass-through to pegs is delayed. Moreover, even though there is a full transmission of unpredictable and independent federal funds rate changes, they explain only a small portion of pegged regime interest rate changes.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.economics.ox.ac.uk/Research/wp/pdf/paper290.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 290.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:oxf:wpaper:290

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Mark George).

Related research
Keywords: Interest Rate Pass-Through Monetary Policy Identification Open Economy Trilemma Exchange Rate Regime

Other versions of this item:

Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

This paper has been announced in the following NEP Reports:

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.:
  1. Thomas Philippon & Eduardo Borensztein & Jeromin Zettelmeyer, 2001. "Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?," IMF Working Papers 01/1, International Monetary Fund. [Downloadable!]
  2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359. [Downloadable!] (restricted)
  3. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September. [Downloadable!]
    Other versions:
  4. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July. [Downloadable!] (restricted)
    Other versions:
  5. David Brownstone & Robert Valletta, 2001. "The Bootstrap and Multiple Imputations: Harnessing Increased Computing Power for Improved Statistical Tests," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 129-141, Fall. [Downloadable!] (restricted)
  6. Philippe Bacchetta & Eric van Wincoop, 2005. "Incomplete Information Processing: A Solution to the Forward Discount Puzzle," Working Papers 05.03, Swiss National Bank, Study Center Gerzensee. [Downloadable!]
    Other versions:
  7. Christina D. Romer & David H. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June. [Downloadable!] (restricted)
  8. Engel, Charles, 1992. "On the foreign exchange risk premium in a general equilibrium model," Journal of International Economics, Elsevier, vol. 32(3-4), pages 305-319, May. [Downloadable!] (restricted)
    Other versions:
  9. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February. [Downloadable!] (restricted)
  10. Bacchetta, Philippe & van Wincoop, Eric, 2005. "Rational Inattention: A Solution to the Forward Discount Puzzle," CEPR Discussion Papers 5261, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September. [Downloadable!] (restricted)
    Other versions:
  12. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February. [Downloadable!] (restricted)
    Other versions:
  13. John Bluedorn & Christopher Bowdler, 2006. "The Open Economy Consequences of U.S. Monetary Policy," Economics Papers 2006-W04, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  14. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September. [Downloadable!]
  15. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April. [Downloadable!] (restricted)
    Other versions:
  16. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," NBER Working Papers 10396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Jon Faust & John H. Rogers & Shing-Yi B. Wang & Jonathan H. Wright, 2003. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," International Finance Discussion Papers 784, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? Data contributors to RePEc receive monthly emails with details about downloads and abstract views of their works.

This page was last updated on 2008-11-17.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.