Monetary Policy and the Volatility of Real Exchange Rates in New Zealand

Kenneth West ()

No 10280, NBER Working Papers from National Bureau of Economic Research, Inc

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. In New Zealand, estimates made under some generous suppositions about what monetary policy is able to accomplish suggest that decreasing real exchange rate volatility by about 25% would require increasing output volatility by about 10-15%, inflation volatility by about 0-15% and interest rate volatility by about 15-40%.

JEL-codes: E52 F31 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-fin, nep-ifn, nep-mac and nep-mon
Note: EFG IFM ME
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Citations: View citations in EconPapers (7)

Published as Kenneth West, 2003. "Monetary policy and the volatility of real exchange rates in New Zealand," New Zealand Economic Papers, Taylor and Francis Journals, vol. 37(2), pages 175-196.

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Working Paper: Monetary policy and the volatility of real exchange rates in New Zealand (2003)
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