The Open Economy Consequences of U.S. Monetary Policy

John Bluedorn and Christopher Bowdler ()

No 2006-W04, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: We characterize the channels by which a failure to distinguish intended/unintended and anticipated/unanticipated monetary policy may lead to attenuation bias in monetary policy's open economy effects. Using a U.S. monetary policy measure which isolates the intended and unanticipated component of federal funds rate changes, we quantify the magnitude of the attenuation bias for the exchange rate and foreign variables, finding it to be substantial. The exchange rate appreciation following a monetary contraction is up to 4 times larger than a recursively-identified VAR estimate. There is stronger evidence of foreign interest rate pass-through. The expenditure-reducing effects of a U.S. monetary policy contraction dominate any expenditure-switching effects, leading to a positive conditional correlation of international outputs and prices.

JEL-codes: E52 F31 F41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2006-06-01
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The open economy consequences of U.S. monetary policy (2011)
Working Paper: The Open Economy Consequences of U.S. Monetary Policy (2006)
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