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Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of The Exchange Rate

In the identified VAR literature the role of the exchange rate in measuring monetary policy shocks has often been neglected. However, many open economies find it useful to target the exchange rate. In such a regime exchange rate innovations will better capture domestic monetary policy shocks. This paper first estimates the weight on the ECU exchange rate in France, Germany and Italy under the ERM regime. Next, these weights are used to identify a typical monetary policy shock in these countries and analyse its effects on output, inflation, the interest rate and the exchange rate.

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Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 133 (1997)
Issue (Month): III (September)
Pages: 597-616

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Handle: RePEc:ses:arsjes:1997-iii-16
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  1. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  2. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series 10, Institute for Advanced Studies.
  3. Arthur Grimes, 1992. "The role of the exchange rate in New Zealand monetary policy," Pacific Basin Working Paper Series 93-03, Federal Reserve Bank of San Francisco.
  4. Nouriel Roubini & Vittorio Grilli, 1995. "Liquidity Models in Open Economies: Theory and Empirical Evidence," NBER Working Papers 5313, National Bureau of Economic Research, Inc.
  5. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  6. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
  7. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
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