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The open economy consequences of U.S. monetary policy

  • Bluedorn, John C.
  • Bowdler, Christopher

We consider the open economy consequences of U.S. monetary policy, extending the identification approach of Romer and Romer (2004) and adapting it for use with asset prices. Intended policy changes are orthogonalized against the economy's expected future path, which captures any effects from open economy variables. Estimated from a set of bilateral VARs, the dynamic responses of the exchange rate, foreign interest rate, and foreign output are consistent with recent work that identifies U.S. policy via futures market changes and a priori impulse response bounds. We compare the two approaches, finding important commonalities. We also outline some advantages of our approach.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 2 (March)
Pages: 309-336

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:2:p:309-336
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  1. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
  2. Giordani, Paolo, 2001. "An Alternative Explanation of the Price Puzzle," Working Paper Series 125, Sveriges Riksbank (Central Bank of Sweden).
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  4. Jon Faust & John H. Rogers & Eric Swanson & Jonathan H. Wright, 2003. "Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data," NBER Working Papers 9660, National Bureau of Economic Research, Inc.
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