The Impact of Monetary Policyon the Exchange Rate: Evidence From Three Small Open Economies
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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.
Series:
Working Paper No. 2000/141
Subject:
Central bank policy rate Currencies Depreciation Exchange rate policy Exchange rates Financial services Foreign exchange Money National accounts
English
Publication Date:
August 1, 2000
ISBN/ISSN:
9781451856170/1018-5941
Stock No:
WPIEA1412000
Pages:
45
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