Measuring monetary policy in open economies
AbstractThe paper extends Bernanke and Mihov's  closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. Implementation of this strategy to the case of Argentina provides the stylized facts necessary to choose among competing theoretical models of this economy. In addition to studying the effects of monetary policy innovations, the present study sheds light on the endogenous component of monetary policy. In this regard, the paper finds that, notwithstanding the relative stability of the exchange rate and the accumulation of large amounts of international reserves, the central bank in Argentina has been far from absorbing balance of payments shocks in a currency-board fashion. The growing level of international reserves can be rationalized, instead, as the monetary authority's response to terms of trade, supply and domestic currency demand shocks.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5252.
Date of creation: 01 Mar 2010
Date of revision:
Currencies and Exchange Rates; Debt Markets; Economic Stabilization; Emerging Markets; Economic Theory&Research;
Other versions of this item:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-04 (All new papers)
- NEP-CBA-2010-04-04 (Central Banking)
- NEP-IFN-2010-04-04 (International Finance)
- NEP-MAC-2010-04-04 (Macroeconomics)
- NEP-MON-2010-04-04 (Monetary Economics)
- NEP-OPM-2010-04-04 (Open Economy Macroeconomic)
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