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Identifying the effects of monetary policy shocks on exchange rates using high frequency data

Author

Listed:
  • Faust, Jon
  • Rogers, John H.
  • Swanson, Eric
  • Wright, Jonathan H.

Abstract

This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of eurodollar contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering. JEL Classification: C32, E52, F30

Suggested Citation

  • Faust, Jon & Rogers, John H. & Swanson, Eric & Wright, Jonathan H., 2002. "Identifying the effects of monetary policy shocks on exchange rates using high frequency data," Working Paper Series 167, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2002167
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rates; high frequency data; identification; monetary policy; vector autoregression;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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