publication . Article . 1995

some empirical evidence on the effects of shocks to monetary policy on exchange rates

M. Eichenbaum; C. L. Evans;
Open Access
  • Published: 01 Nov 1995 Journal: The Quarterly Journal of Economics, volume 110, pages 975-1,009 (issn: 0033-5533, eissn: 1531-4650, Copyright policy)
  • Publisher: Oxford University Press (OUP)
This paper investigates the effects of shocks to U. S. monetary policy on exchange rates. We consider three measures of these shocks: orthogonalized shocks to the federal funds rate, orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the Romer and Romer index of monetary policy. In sharp contrast to the literature, we find substantial evidence of a link between monetary policy and exchange rates. Specifically, according to our results a contractionary shock to U. S. monetary policy leads to (i) persistent, significant appreciations in U. S. nominal and real exchange rates and (ii) significant, persistent deviations from uncovered ...
free text keywords: Economics and Econometrics, Fisher hypothesis, Economics, Federal funds, Interest rate parity, Interest rate, media_common.quotation_subject, media_common, International Fisher effect, Monetary policy, Inflation targeting, Credit channel, Monetary economics
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