Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data

47 Pages Posted: 17 Dec 2002

See all articles by Jon Faust

Jon Faust

Board of Governors of the Federal Reserve - Division of International Finance; Johns Hopkins University

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section

Eric T. Swanson

University of California, Irvine - Department of Economics

Jonathan H. Wright

Johns Hopkins University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2002

Abstract

This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.

Keywords: High frequency data, identification, vector autoregression, exchange rates, monetary policy

JEL Classification: C32, E52, F30

Suggested Citation

Faust, Jon and Rogers, John H. and Swanson, Eric T. and Wright, Jonathan H., Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data (October 2002). ECB Working Paper No. 167; FRB International Finance Discussion Paper No. 739. Available at SSRN: https://ssrn.com/abstract=344000

Jon Faust

Board of Governors of the Federal Reserve - Division of International Finance ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2328 (Phone)
202-736-5638 (Fax)

Johns Hopkins University

Baltimore, MD 20036-1984
United States

John H. Rogers (Contact Author)

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2873 (Phone)
202-736-5638 (Fax)

Eric T. Swanson

University of California, Irvine - Department of Economics ( email )

University of California, Irvine
3151 Social Science Plaza
Irvine, CA 92697-5100
United States
(949) 824-8305 (Phone)

HOME PAGE: http://www.ericswanson.org

Jonathan H. Wright

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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