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New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates

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  • Scholl, Almuth
  • Uhlig, Harald

Abstract

Past empirical research on monetary policy in open economies has found evidence of the 'delayed overshooting puzzle' and the 'forward discount puzzle'. We revisit the effects of monetary policy on exchange rates by applying Uhlig's [Uhlig, H., 2005a. What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics 52(2), 381-419.] identification procedure that involves sign restrictions on the impulse responses of selected variables. In a first step, we leave the response of the exchange rate agnostically open and find sizeable evidence for both puzzles. In a second step, we additionally rule out the delayed overshooting by construction. Our results indicate that the forward discount puzzle is robust even without delayed overshooting.

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  • Scholl, Almuth & Uhlig, Harald, 2008. "New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates," Journal of International Economics, Elsevier, vol. 76(1), pages 1-13, September.
  • Handle: RePEc:eee:inecon:v:76:y:2008:i:1:p:1-13
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    More about this item

    Keywords

    Vector autoregressions Agnostic identification Forward discount puzzle Delayed overshooting Exchange rates Monetary policy;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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