Measuring Monetary Policy in Open Economies

Fabio C. Bagliano (), Carlo Favero () and Francesco Franco

No 2079, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The empirical VAR literature on the monetary transmission mechanism in open economies has not yet provided a commonly accepted solution to the problem of simultaneity between interest rates and the exchange rate. In this paper we propose to solve the identification problem by using information extracted from financial markets independently from the VAR to measure monetary policy shocks. We also evaluate the relative importance of macroeconomic and monetary policy variables in explaining short-term fluctuations in the nominal exchange rate. Our main results are that the simultaneity between German policy rates and the US\ dollar/D Mark exchange rate is not an empirically relevant problem, and that monetary variables are dominated by macroeconomic factors in the explanation of exchange rate fluctuations.

Keywords: Exchange Rates; implicit forward rate curve; Monetary Policy; VAR models (search for similar items in EconPapers)
JEL-codes: E44 E52 F41 (search for similar items in EconPapers)
Date: 1999-02
View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP2079.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Measuring Monetary Policy in Open Economies
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:2079

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP2079.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().