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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Identifying the effects of monetary policy shocks on exchange rates using high frequency data
Jon Faust
John H. Rogers
Eric T. Swanson
Jonathan H. Wright
Abstract

This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.


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Jon Faust & John H. Rogers & Eric T. Swanson & Jonathan H. Wright, Identifying the effects of monetary policy shocks on exchange rates using high frequency data, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 739, 2002.
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Keywords: Monetary policy ; Foreign exchange rates
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