The Impact of Monetary Policy on the Exchange Rate: Evidence from Three Small Open Economies

By Jerónimo Zettelmeyer. Social Science Research Network, 2000

132 citations recorded by the source corpus.

This paper studies the impact effect of monetary policy shocks—identified by the reaction of three month market interest rates to policy announcements—on the exchange rate in Australia, Canada, and New Zealand during the 1990s. The main results are that (1) on average, a 100 basis point contractionary shock will appreciate the exchange rate by 2-3 percent on impact; (ii) seemingly “perverse” reactions of the exchange rate to monetary policy are mainly attributable to reverse causality; (iii) in a few instances, there were true “perverse” reactions of exchange rates to policy— generally, appreciations following expansionary shocks.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/68d4d6d27b4c007dea7a4eeabff66eda5a669fb8

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In Finance

1. H. Bjørnland
2. D. Jacobsen

Citations in the corpus

• OIL PRICE SHOCKS AND STOCK MARKET BOOMS IN AN OIL EXPORTING COUNTRY (2009, unknown): “This is consistent with the quick adjustment in asset prices observed in the data following monetary policy surprises (see e.g. Rigobon and Sack, 2004; Zettelmeyer, 2004).”
• The role of house prices in the monetary policy transmission mechanism in small open economies (2010, background): “Due to their role as stores of wealth, they could also be important transmitters of shocks since they react quickly to news (incl. monetary policy announcements), as emphasized in Zettelmeyer (2004), Rigobon and Sack (2004) and Bernanke and Kuttner (2005) among others.”
• Do high interest rates defend currencies during speculative attacks (2003, unknown): “In a recent careful contribution, Zettelmeyer (2000) provides evidence that apparent " perverse " effects of monetary policy announcements on exchange rates in Australia, New Zealand, and Canada can be attributed to reverse causation.”
• Monetary policy and exchange rate overshooting: Dornbusch was right after all* (2009, background): “appreciating effect on the exchange rate, see for instance Bonser-Neal et al. (1998), Zettelmeyer (2004) and Kearns and Manners (2005).”
• Commodity Currencies and Empirical Exchange Rate Puzzles (2002, unknown): “10 We refer the reader to Zettelmeyer (2000) for a more thorough discussion of the conduct of monetary policy in these three countries in the 1990s.”