New Evidence on the Effects of U.S. Monetary Policy on Exchange Rates

13 Pages Posted: 26 Nov 2000

See all articles by Alexander Michaelides

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Sarantis C. Kalyvitis

Athens University of Economics and Business - Department of International and European Economic Studies

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Date Written: November 2000

Abstract

We examine the impact of U.S. monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov (1998). We find evidence for instantaneous, rather than delayed, U.S. 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.

Keywords: monetary policy, overshooting, excess returns, forward premium puzzle

JEL Classification: E52, F31

Suggested Citation

Michaelides, Alexander and Kalyvitis, Sarantis C., New Evidence on the Effects of U.S. Monetary Policy on Exchange Rates (November 2000). Available at SSRN: https://ssrn.com/abstract=250848 or http://dx.doi.org/10.2139/ssrn.250848

Alexander Michaelides (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Sarantis C. Kalyvitis

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

Patission Str 76
GR-10434 Athens
Greece

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