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Measuring monetary policy shocks in France, Germany and Italy: The role of the exchange rate

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  • Frank Smets

    (European Central Bank (ECB))

Abstract

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.

Suggested Citation

  • Frank Smets, 1997. "Measuring monetary policy shocks in France, Germany and Italy: The role of the exchange rate," BIS Working Papers 42, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:42
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    1. Arthur Grimes & Jason Wong, 1992. "The role of the exchange rate in New Zealand monetary policy," Proceedings, Federal Reserve Bank of San Francisco, pages 176-197.
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