The Impact of Monetary Policy on the Bilateral Exchange Rate: Chile Versus the United States
23 Pages Posted: 29 Jan 2006
Date Written: April 2003
This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the change in the exchange rate following a policy announcement on changes in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.
Keywords: Monetary Policy, Interest Rates, Exchange Rates
JEL Classification: E52, E58, F31, F41
Suggested Citation: Suggested Citation