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New evidence on the effects of US monetary policy on exchange rates

Sarantis Kalyvitis () and Alexander Michaelides

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We examine the impact of US monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov [Quarterly Journal of Economics, 113 (1998) 869–902]. We find evidence for instantaneous, rather than delayed, US dollar overshooting after a monetary shock when relative output and relative prices are included in the VAR specification. The forward premium puzzle persists due to the interest rate differential response.

Keywords: monetary policy; overshooting; excess returns; forward premium puzzle. JEL classification codes: E52; F31 (search for similar items in EconPapers)
JEL-codes: E52 F31 (search for similar items in EconPapers)
Date: 2001-05
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Published in Economics Letters, May, 2001, 71(2), pp. 255-263. ISSN: 0165-1765

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