Monetary policy shocks and exchange rates in Asian countries

Jihae Kim, Soyoung Kim and Donghyun Park

Japan and the World Economy, 2020, vol. 56, issue C

Abstract: In this paper, we empirically investigate the effects of monetary policy shocks on exchange rates in Asian countries. To do so, we use VAR models which impose sign restrictions on impulse responses to identify monetary policy shocks. We find that contractionary monetary policy shocks lead to significant exchange rate appreciation in Malaysia, the People’s Republic of China, and the Republic of Korea. However, in India, Indonesia, the Philippines and Thailand, we find either a significant depreciation or no significant effect. These results suggest that an interest rate increase (or decrease) may not necessarily shield Asian countries from exchange rate depreciation (or appreciation) pressure following a U.S. interest rate increase (or decrease).

Keywords: Asia; VAR; Monetary policy shocks; Exchange rate; UIP condition; Delayed overshooting; Exchange rate puzzle; Sign restrictions (search for similar items in EconPapers)
JEL-codes: E52 F31 F42 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:56:y:2020:i:c:s0922142520300426

DOI: 10.1016/j.japwor.2020.101041

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