The Impact of Monetary Policy on the Exchange Rate: Evidence from Three Small Open Economies

46 Pages Posted: 31 Jan 2006

See all articles by Jeromin Zettelmeyer

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics; CEPR

Date Written: August 2000

Abstract

This paper studies the impact effect of monetary policy shocks - identified by the reaction of three month market interest rates to policy announcements - on the exchange rate in Australia, Canada, and New Zealand during the 1990s. The main results are that (i) on average, a 100 basis point contractionary shock will appreciate the exchange rate by 2-3 percent on impact; (ii) seemingly perverse reactions of the exchange rate to monetary policy are mainly attributable to reverse causality; (iii) in a few instances, there were true perverse reactions of exchange rates to policy - generally, appreciations following expansionary shocks.

Keywords: Monetary Policy, Interest Rates, Exchange Rates

JEL Classification: E52, E58, F31, F41

Suggested Citation

Zettelmeyer, Jeromin, The Impact of Monetary Policy on the Exchange Rate: Evidence from Three Small Open Economies (August 2000). IMF Working Paper, Vol. , pp. 1-46, 2000. Available at SSRN: https://ssrn.com/abstract=879934

Jeromin Zettelmeyer (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

CEPR ( email )

London
United Kingdom

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