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

New Evidence on the Puzzles: Monetary Policy and Exchange Rates

Contents:

Author Info

  • Almuth Scholl
  • Harald Uhlig

Abstract

Past empirical research on monetary policy in open economies has found the “delayed overshootingâ€, the “forward discount†and the “exchange rate†puzzles. We revisit the effects of monetary policy on exchange rates by applying Uhlig's (2005) identification procedure that involves sign restrictions on the impulse responses of selected variables. We impose no restrictions on the exchange rate to leave the key question as open as possible. Importantly, our identification scheme avoids the “price puzzleâ€. We find that the puzzles regarding the exchange rate are still there, but that the quantitative features are different. In response to US monetary policy shocks, the peak appreciation happens during the first year after the shock for the US-UK and the US-Japan country pair and during the first two years for the US-Germany country pair. There is a robust forward discount puzzle implying a large risk premium. We study this issue by calculating conditional Sharpe ratios for a Bayesian investor investing in a hedged position following a US monetary policy shock. For foreign monetary policy shocks, we find a considerable uncertainty regarding the initial reaction of the exchange rate. Quantitatively, monetary policy shocks seem to have a minor impact on exchange rate fluctuations

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://repec.org/sce2006/up.6904.1134637537.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 5.

as in new window
Length:
Date of creation: 04 Jul 2006
Date of revision:
Handle: RePEc:sce:scecfa:5

Contact details of provider:
Email:
Web page: http://comp-econ.org/
More information through EDIRC

Related research

Keywords: vector autoregressions; agnostic identification; forward discount bias puzzle; exchange rate puzzle; monetary policy;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Watzka, Sebastian & Schenkelberg, Heike, 2011. "Real effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-based evidence from Japan," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48687, Verein für Socialpolitik / German Economic Association.
  2. Mumtaz, Haroon, 2011. "Estimating the impact of the volatility of shocks: a structural VAR approach," Bank of England working papers 437, Bank of England.
  3. Jean Boivin & Marc P. Giannoni & Benoît Mojon, 2009. "How Has the Euro Changed the Monetary Transmission Mechanism?," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 77-125 National Bureau of Economic Research, Inc.
  4. Cosmin Ilut, 2009. "Ambiguity Aversion: Implications For The Uncovered Interest Rate Parity Puzzle," 2009 Meeting Papers 328, Society for Economic Dynamics.
  5. Jean Boivin & Marc Giannoni, 2008. "Global Forces and Monetary Policy Effectiveness," NBER Working Papers 13736, National Bureau of Economic Research, Inc.
  6. Mumtaz, Haroon & Theodoridis, Konstantinos, 2012. "The international transmission of volatility shocks: an empirical analysis," Bank of England working papers 463, Bank of England.
  7. Jean Boivin & Marc P. Giannoni & Benoît Mojon, 2008. "How Has the Euro Changed the Monetary Transmission?," NBER Working Papers 14190, National Bureau of Economic Research, Inc.

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:sce:scecfa:5. 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: (Christopher F. Baum).

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.