Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Kansas City
Research Working Paper
The effect of monetary policy actions on exchange rates under interest-rate targeting
Catherine Bonser-Neal
V. Vance Roley
Gordon H. Sellon
Abstract

One puzzling feature of recent empirical studies of the effects of monetary policy changes on exchange rates is the result that the exchange rate does not adjust immediately to the policy shock. Instead, these studies find that it can take as long as two years for the exchange rate to fully reflect the policy change. In this paper, a model of the exchange-rate response to U.S. monetary policy actions which captures these results is specified. This model is also capable of generating standard overshooting results. The authors show that the response pattern of spot and expected future exchange rates depends on the predictability of Federal Reserve actions, the persistence of shocks to the economy, and the reaction of foreign central banks to the U.S. monetary policy shock.


No download available
Cite this item
Catherine Bonser-Neal & V. Vance Roley & Gordon H. Sellon, The effect of monetary policy actions on exchange rates under interest-rate targeting, Federal Reserve Bank of Kansas City, Research Working Paper 97-05, 1997.
More from this series
JEL Classification:
Subject headings:
Keywords: Monetary policy ; Foreign exchange rates
For corrections, contact Lu Dayrit ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal