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The Impact of Monetary Policy on the Bilateral Exchange Rate: Chile Versus the United States


  • Jeromin Zettelmeyer


This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the variation in the exchange rate following a policy announcement on variations in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month Treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.

Suggested Citation

  • Jeromin Zettelmeyer, 2003. "The Impact of Monetary Policy on the Bilateral Exchange Rate: Chile Versus the United States," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(2), pages 29-43, August.
  • Handle: RePEc:chb:bcchec:v:6:y:2003:i:2:p:29-43

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    References listed on IDEAS

    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    2. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    3. Thomas Philippon & Jeronimo Zettelmeyer & Eduardo Borensztein, 2001. "Monetary Independence in Emerging Markets; Does the Exchange Rate Regime Make a Difference?," IMF Working Papers 01/1, International Monetary Fund.
    4. Grilli, Vittorio & Roubini, Nouriel, 1996. "Liquidity models in open economies: Theory and empirical evidence," European Economic Review, Elsevier, vol. 40(3-5), pages 847-859, April.
    5. Felipe G. Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers Central Bank of Chile 152, Central Bank of Chile.
    6. Bagliano, Fabio C. & Favero, Carlo A., 1999. "Information from financial markets and VAR measures of monetary policy," European Economic Review, Elsevier, vol. 43(4-6), pages 825-837, April.
    7. Vittorio Grilli & Nouriel Roubini, 1995. "Liquidity and Exchange Rates: Puzzling Evidence from the G-7 Countries," Working Papers 95-17, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
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