Which Monetary Shocks Matter in Small Open Economies? Evidence from SVARs

53 Pages Posted: 20 Jan 2017

See all articles by Jongrim Ha

Jongrim Ha

World Bank

Inhwan So

Bank of Korea; Bank of Korea - Economic Research Institute

Date Written: January 19, 2017


This paper investigates the nature of monetary policy transmission in the U.S. and selected small open economies by estimating SVAR models using the external instrument identification method. Differing from related studies on the U.S., which employ high-frequency futures data on Federal Funds rates, we exploit alternative sets of external instruments for the focal economies. We find that U.S. monetary policy plays an important role in monetary transmission in SOE interest rates, presumably hampering the effectiveness of domestic monetary policy. We also provide some evidence that foreign exchange rates in this process respond to monetary shocks as Dornbusch (1976)’s overshooting hypothesis.

Keywords: Monetary policy transmission, External instrument identification, Structural VAR model

JEL Classification: E44, E52

Suggested Citation

Ha, Jongrim and So, Inhwan, Which Monetary Shocks Matter in Small Open Economies? Evidence from SVARs (January 19, 2017). Bank of Korea WP 2017-2, Available at SSRN: https://ssrn.com/abstract=2901799 or http://dx.doi.org/10.2139/ssrn.2901799

Jongrim Ha (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Inhwan So

Bank of Korea ( email )

Korea, Republic of (South Korea)

HOME PAGE: http://https://sites.google.com/view/inhwanso

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

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