How does Monetary Policy Respond to Exchange Rate Movements? New International Evidence
type="main" xml:lang="en"> This article analyzes how monetary policy has responded to exchange rate movements in six open economies, paying particular attention to the two-way interaction between monetary policy and the exchange rate. We address this issue using a structural VAR model that is identified using a combination of sign and short-term (zero) restrictions. Doing so we find that, while there is a instantaneous reaction in the exchange rate following a monetary policy shock in all countries, monetary policy responds significantly on impact to an exchange rate shock in only four of the six countries.
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Volume (Year): 76 (2014)
Issue (Month): 2 (April)
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