Monetary policy and exchange rate anomalies in set‐identified SVARs

Revisited

Bibliographic Data

ID21653460
AuthorsSebastian K Rüth (Faculty of Economics, Law, and Social Sciences University of Erfurt Erfurt Germany), Wouter Van der Veken (Department of Economics Ghent University Ghent Belgium, corresponding author)
Year2023
Volume38
Issue7
Pages1085-1092
Publication date2023-11-01
Open AccessYes
TypeARTICLE
VenueJournal of Applied Econometrics (JOURNAL)
Journal identifiersISSN: 1099-1255 • E-ISSN: 0883-7252
PublisherWiley (PUBLISHER • GB)
DOI10.1002/jae.2999
OpenAlexW4385239968
LanguageEN
References cited23

Set‐identified vector autoregressions typically document violations of uncovered interest rate parity ( forward discount puzzle ) and gradual appreciation–depreciation cycles of exchange rates ( delayed overshooting puzzle ) following contractionary monetary policy shocks. We revisit both anomalies in a framework similar to Kim et al. (2017, JPE). We complement their identifying restrictions on how monetary policy affects the economy with restrictions on (i) how monetary policy reacts to the economy and (ii) historical monetary policy innovations. In this hybrid identification, no major forward discount premia emerge. Once we additionally impose that monetary policy propagates through domestic financial conditions, exchange rates also overshoot with less delay

Economics · Exchange rate · Interest rate · Interest rate parity · Macroeconomics · Monetary economics · Monetary policy · Italy: Economic History and Contemporary Issues · Market Dynamics and Volatility · Monetary Policy and Economic Impact

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