The Effect of Monetary Policy on Exchange Rates : How to Solve the Puzzles
Citations
36 citations
Cites background or methods from "The Effect of Monetary Policy on Ex..."
...However, several recent papers suggest other identifying restrictions (e.g., Bernanke and Mihov, 1995; Kim and Roubini, 1995; Kumah, 1997)....
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...In other words, we measure monetary policy shocks of time-t by changes in the BOI interest rate that are orthogonal to: * Changes in all variables (i.e., of types I, II, and III) observed prior to time t (up to time t 1), and * Contemporaneous (i.e., time t) changes in the non-policy variables on which the BOI bases its monetary policy (i.e., type I variables such as contemporaneous changes in inflation expectations)....
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...In other words, we measure monetary policy shocks of time-t by changes in the BOI interest rate that are orthogonal to: * Changes in all variables (i.e., of types I, II, and III) observed prior to time t (up to time t 1), and * Contemporaneous (i.e., time t) changes in the non-policy variables on…...
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...Changes in this rate are based, in recent years, on several indicators that, considered together, illuminate the monetary picture and indicate how necessary it is to tighten or loosen monetary policy to achieve inflation targets.3 Among those indicators, the inflation environment is assessed by the recent rate of inflation and by inflation expectations to 12 months, which are derived from the government indexed-bond market....
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Cites methods from "The Effect of Monetary Policy on Ex..."
...This puzzle was subsequently partially resolved by Kumah (1996) and completely resolved by Kim and Roubini (2000) by adopting an SVAR approach instead of the UVAR....
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2 citations
Cites background from "The Effect of Monetary Policy on Ex..."
...See Kumah (1996) and Smets (1997) for a discussion. 18 The ‘price puzzle’ refers to the finding that the price level rises following a monetary policy tightening. See Sims (1992) and Christiano, Eichenbaum and Evans (1996) for a discussion....
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...See Kumah (1996) and Smets (1997) for a discussion....
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References
4,766 citations
"The Effect of Monetary Policy on Ex..." refers background or methods in this paper
...The monetary approach to exchange rate modelling encompasses both sticky-price models (of Dornbusch(1976) for instance) and flexible price models....
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...…federal funds rate and - following the predictions of asset-market-based models of exchange rate determination (the overshooting sticky-price model of Dornbusch(1976) for instance) - to, ceteris paribus , depreciate the dollar on impact just as a contractionary foreign monetary policy shock would....
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3,027 citations
"The Effect of Monetary Policy on Ex..." refers background or methods in this paper
...Bernanke and Blinder(1992) argue for the use of innovations to the federal funds rate as monetary innovations....
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...Following Bernanke and Blinder(1992) we assume that monetary policy variables respond contemporaneously to innovations in domestic macroeconomic variables - this is to say that monetary authorities have contemporaneous information on the state of the economy....
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...Their identification scheme encompasses those of Bernanke and Blinder(1992), Christiano et al(1992) and Strongin(1995)....
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...Bernanke and Mihov also show that the identification schemes of Bernanke and Blinder(1992) as well as that of Christiano et al ....
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...In a search for a solution to this puzzle Bernanke and Blinder(1992) as well as Sims(1992) identify monetary policy shocks directly with innovations in interest rates....
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