The Impact of Monetary Policyon the Exchange Rate: Evidence From Three Small Open Economies

August 1, 2000

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Format: Chicago

Jeromin Zettelmeyer. The Impact of Monetary Policyon the Exchange Rate: Evidence From Three Small Open Economies, (USA: International Monetary Fund, 2000) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Central bank policy rate, Currencies, Depreciation, Exchange rate policy, Exchange rates, Financial services, Foreign exchange, Money, National accounts

Keywords: Australia and New Zealand, Bank bill, Central bank policy rate, Currencies, Depreciation, Exchange rate development, Exchange rate market turbulence, Exchange rate policy, Exchange rate weakness, Exchange Rates, Interest rate hike, Interest rate target, Interest Rates, Market turbulence, Monetary Policy, Money market, Overnight rate, Policy action, Policy announcement, Short interest, Tight money, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/141
Stock No:

WPIEA1412000
ISBN:

9781451856170
ISSN:

1018-5941

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