Monetary Policy and Exchange Rate Interactions in a Small Open Economy

Hilde Christiane Bjørnland ()

Scandinavian Journal of Economics, 2008, vol. 110, issue 1, pages 197-221

Abstract: The transmission mechanisms of monetary policy in a small open economy like Norway are analysed through structural VARs, with special emphasis on the interdependence between monetary policy and exchange rate movements. By imposing a long-run neutrality restriction on the real exchange rate, thereby allowing the interest rate and the exchange rate to react simultaneously to news, I find considerable interdependence between monetary policy and the exchange rate. In particular, following a contractionary monetary policy shock, the real exchange rate immediately appreciates, after which it gradually depreciates back to the baseline. The results are found to be consistent with findings from an "event study". Copyright © The editors of the "Scandinavian Journal of Economics" 2008 .

Date: 2008

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Related works:
Working Paper: Monetary policy and exchange rate interactions in a small open economy (2005)
Working Paper: Monetary policy and exchange rate interactions in a small open economy (2005)
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