Monetary Policy Shocks in a Tri-Polar Model of Foreign Exchange
AbstractThis paper investigates effects of third-currency monetary policy shocks on exchange rates. For this purpose we setup a structural VAR model containing the exchange rates of the three major currencies – the U.S. dollar, the euro and the Japanese yen – and short-term interest rates on the three currencies. In addition, we include the medium-term interest rates and price levels as control variables. Long-run restrictions in accord with tested hypotheses and the existing literature are used to identify the structural VAR. The impulse response analysis of the co- integrated VAR reveals that third-currency monetary policy shocks not only significantly impact on the considered exchange rates but their impacts are comparable to those of MP shocks associated with the quoted currencies in terms of their magnitude.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0505016.
Length: 25 pages
Date of creation: 31 May 2005
Date of revision:
Note: Type of Document - pdf; pages: 25
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Exchange Rates; Currency Substitution; Third-Currency Effects; SVAR;
Find related papers by JEL classification:
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- 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:
- NEP-ALL-2005-06-05 (All new papers)
- NEP-CBA-2005-06-05 (Central Banking)
- NEP-IFN-2005-06-05 (International Finance)
- NEP-MON-2005-06-05 (Monetary Economics)
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