Monetary policy and the volatility of real exchange rates in New Zealand

Kenneth D. West ()

No DP2003/09, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: The relationship between interest rates and exchange rates is puzzling and poorly understood. But under some standard assumptions, interest rates can be adjusted to smooth real exchange rate movements at the possible price of increased volatility in other variables. Estimates made under some generous suppositions about what monetary policy is able to accomplish suggest that decreasing real exchange rate volatility by about 25 per cent would require increasing output volatility by about 10-15 per cent, inflation volatility by about 0-15 per cent and interest rate volatility by about 15-40 per cent.

JEL-codes: E2 F31 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-rmg
Date: 2003-11
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Related works:
Working Paper: Monetary Policy and the Volatility of Real Exchange Rates in New Zealand (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:nzb:nzbdps:2003/09

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