New evidence on the effects of US monetary policy on exchange rates

Kalyvitis, Sarantis; and Michaelides, Alexander (2001) New evidence on the effects of US monetary policy on exchange rates. Economics Letters, 71 (2). pp. 255-263. ISSN 0165-1765
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We examine the impact of US monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov [Quarterly Journal of Economics, 113 (1998) 869–902]. We find evidence for instantaneous, rather than delayed, US dollar overshooting after a monetary shock when relative output and relative prices are included in the VAR specification. The forward premium puzzle persists due to the interest rate differential response.
Item Type Article
Keywords monetary policy,overshooting,excess returns,forward premium puzzle. JEL classification codes: E52,F31
Departments Financial Markets Group
Economics
DOI 10.1016/S0165-1765(01)00375-5
Date Deposited 29 Jun 2006
URI https://researchonline.lse.ac.uk/id/eprint/197

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