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The Exchange Rate -a Shock-Absorber or Source of Shocks? A Study of Four Open Economies

Listed author(s):
  • Michael Artis
  • Michael Ehrmann

The paper provides SVAR estimates for four open economies: the UK, Canada, Sweden and Denmark, making explicit a monetary policy reaction function and taking account of exchange rate targeting practices. The object of the analysis is to examine the idea that an independent money and exchange rate should allow for effective shock-absorption. A polar extreme would be that exchange markets breed their own, and destabilizing, shocks. The paper’s findings vary from one economy to another: monetary union appears easy to recommend for Sweden and Denmark, much less so for Canada and the UK.

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File URL: http://www.eui.eu/ERPA/RSCAS/../../RSCAS/WP-Texts/00_38.pdf
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File URL: http://www.eui.eu/ERPA/RSCAS/../../RSCAS/WP-Texts/00_38.pdf
File Function: Full text
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Paper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 38.

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Date of creation: 15 Sep 2000
Handle: RePEc:erp:euirsc:p0033
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  1. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  2. Richard Clarida & Jordi Gali, 1994. "Sources of real exchange rate fluctuations: how important are nominal shocks?," Proceedings, Federal Reserve Bank of Dallas, issue Apr, pages -.
  3. 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.
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  5. Michael Artis & Michael Ehrmann, 2000. "The Exchange Rate -a Shock-Absorber or Source of Shocks? A Study of Four Open Economies," EUI-RSCAS Working Papers 38, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  6. Jon Faust & John H. Rogers, 1999. "Monetary policy's role in exchange rate behavior," International Finance Discussion Papers 652, Board of Governors of the Federal Reserve System (U.S.).
  7. Michael Funke, 2000. "Macroeconomic Shocks in Euroland vs. the UK: Supply, Demand, or Nominal?," EUI-RSCAS Working Papers 37, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  8. Buiter, Willem H., 1999. "The EMU and the NAMU: What is the Case for North American Monetary Union?," CEPR Discussion Papers 2181, C.E.P.R. Discussion Papers.
  9. Weymark, Diana N., 1995. "Estimating exchange market pressure and the degree of exchange market intervention for Canada," Journal of International Economics, Elsevier, vol. 39(3-4), pages 273-295, November.
  10. Buiter, Willem H, 2000. "Optimal Currency Areas: Scottish Economic Society/Royal Bank of Scotland Annual Lecture, 1999," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(3), pages 213-250, August.
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  18. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
  19. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(1), pages 58-83, March.
  20. Alun H. Thomas, 1997. "Is the Exchange Rate a Shock Absorber? the Case of Sweden," IMF Working Papers 97/176, International Monetary Fund.
  21. Maurice Obstfeld, 1985. "Floating Exchange Rates: Experience and Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 369-464.
  22. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
  23. Kim, Soyoung, 2002. "Exchange rate stabilization in the ERM: identifying European monetary policy reactions," Journal of International Money and Finance, Elsevier, vol. 21(3), pages 413-434, June.
  24. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," FRB Atlanta Working Paper 95-7, Federal Reserve Bank of Atlanta.
  25. MacDonald, Ronald, 1999. "Exchange Rate Behaviour: Are Fundamentals Important?," Economic Journal, Royal Economic Society, vol. 109(459), pages 673-691, November.
  26. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  27. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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