How does monetary policy respond to exchange rate movements? New international evidence
This paper analyzes how monetary policy responds to exchange rate movements in open economies, paying particular attention to the two-way interaction between monetary policy and exchange rate movements. We address this issue using a structural VAR model that is identified using a combination of sign and short-term (zero) restrictions. Our suggested identification scheme allows for a imultaneous reaction between the variables that are observed to respond intraday to news (the interest rate and the exchange rate), but maintains the recursive order for the traditional macroeconomic variables (GDP and inflation). Doing so, we find strong interaction between monetary policy and exchange rate variation. Our results suggest more theory consistency in the monetary policy responses than what has previously been reported in the literature.
|Date of creation:||22 Oct 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +47 22 31 60 00
Fax: +47 22 41 31 05
Web page: http://www.norges-bank.no/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wei Dong, 2008.
"Do Central Banks Respond to Exchange Rate Movements? Some New Evidence from Structural Estimation,"
08-24, Bank of Canada.
- Wei Dong, 2013. "Do central banks respond to exchange rate movements? Some new evidence from structural estimation," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 555-586, May.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, .
"Inflation Dynamics and the Cost Channel of Monetary Transmission,"
2003_19, Business School - Economics, University of Glasgow, revised Oct 2003.
- Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2006. "Inflation dynamics and the cost channel of monetary transmission," European Economic Review, Elsevier, vol. 50(4), pages 995-1016, May.
- Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2004. "Inflation dynamics and the cost channel of monetary transmission," CFR Working Papers 04-01, University of Cologne, Centre for Financial Research (CFR).
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics and the Cost Channel of Monetary Transmission," Money Macro and Finance (MMF) Research Group Conference 2004 18, Money Macro and Finance Research Group.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics And The Cost Channel Of Monetary Transmission," Royal Economic Society Annual Conference 2004 80, Royal Economic Society.
- Farrant, Katie & Peersman, Gert, 2006.
"Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 38(4), pages 939-961, June.
- K. Farrant & G. Peersman, 2005. "Is the exchange rate a shock absorber or a source of shocks? New empirical evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/285, Ghent University, Faculty of Economics and Business Administration.
- Almuth Scholl & Harald Uhlig, 2005.
"New Evidence on the Puzzles. Results from Agnostic Identification on Monetary Policy and Exchange Rates,"
SFB 649 Discussion Papers
SFB649DP2005-037, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Scholl, Almuth & Uhlig, Harald, 2008. "New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates," Journal of International Economics, Elsevier, vol. 76(1), pages 1-13, September.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, June.
- John B. Taylor, 1999.
"A Historical Analysis of Monetary Policy Rules,"
in: Monetary Policy Rules, pages 319-348
National Bureau of Economic Research, Inc.
- John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:bno:worpap:2008_15. 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: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.