The Changing Influence of Money and Monetary Policy on Exchange Rates

Adrienne A Kearney

Economic Inquiry, 1995, vol. 33, issue 2, 203-16

Abstract: This paper focuses on an old issue--the linkage between money announcements and the exchange rate. It shows that the magnitude of the time-varying response of the spot exchange rate to an unanticipated money announcement is mainly driven by agents' expectations of the Federal Reserve's time-varying response to the deviation of the actual money supply from a prespecified target. The inference is that the magnitude of the exchange rate's response to economic announcements depends on market participants' expectations about the announcements and the Fed's probable monetary policy response. Copyright 1995 by Oxford University Press.

Date: 1995
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