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

  • Frank Smets

    (European Central Bank (ECB))

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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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 42.

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Length: 25 pages
Date of creation: Jun 1997
Date of revision:
Handle: RePEc:bis:biswps:42
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  1. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring Monetary Policy," NBER Working Papers 5145, National Bureau of Economic Research, Inc.
  2. 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.
  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. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412 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. Fernando Barran & Virginie Coudert & BenoƮt Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
  7. Vittorio Grilli & Nouriel Roubini, 1995. "Liquidity Models in Open Economies: Theory and Empirical Evidence," Working Papers 95-16, New York University, Leonard N. Stern School of Business, Department of Economics.
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