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Monetary policy and exchange rate dynamics in the Spanish economy

Javier Andrés (), Ricardo Mestre () and Javier Valles

Spanish Economic Review, 1999, vol. 1, issue 1, 55-77

Abstract: As the Spanish economy gets more integrated in international markets, the real exchange rate becomes a key determinant of the monetary transmission. In this paper we trace out the dynamic response of prices, output and the exchange rate following a monetary policy shock. We estimate a structural VAR model whose identification scheme is based on the long run properties common to a large class of models. The results suggest that a small model with efficient asset markets plus nominal inertia and long run monetary neutrality, captures the essential features of the monetary transmission mechanism in Spain. The interest rate shock is well identified and the exchange rate overshoots its long run value. There are no signs of liquidity puzzle nor of price puzzle or exchange rate puzzle either.

Keywords: Structural VAR; monetary shocks; exchange rate; overshooting (search for similar items in EconPapers)
JEL-codes: E52 E40 E31 (search for similar items in EconPapers)
Date: 1999-03-10
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Working Paper: Monetary Policy and Exchange Rate Dynamics in the Spanish Economy (1997)
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