Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates
This paper investigates the effects of shocks to U.S. monetary policy on exchange rates. We consider three measures of these shocks: orthogonalized shocks to the federal funds rate, orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the Romer and Romer index of monetary policy. In sharp contrast to the literature, we find substantial evidence of a link between monetary policy and exchange rates. Specifically, according to our results a contractionary shock to U.S. monetary policy leads to (1) persistent, significant appreciations in U.S. nominal and real exchange rates and (2) significant, persistent deviations from uncovered interest rate parity in favor of U.S. interest rates. Copyright 1995, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 110 (1995)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00335533|
When requesting a correction, please mention this item's handle: RePEc:tpr:qjecon:v:110:y:1995:i:4:p:975-1009. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Pollock-Nelson)
If references are entirely missing, you can add them using this form.