Permanent and temporary monetary policy shocks and the dynamics of exchange rates

• 成果类型: Article
• 署名作者: Carvalho, Alexandre; Valle e Azevedo, Joao; Ribeiro, Pedro Pires
• 署名单位: Banco de Portugal; Universidade Nova de Lisboa
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2023.103871
• 发表日期: 2024
• 关键词: Exchange rates; Fisher relation; Monetary policy cointegration; monetary shocks; Structural VEC models

摘要

We show the distinction between permanent and temporary monetary policy shocks is helpful to understand the impacts of monetary policy on exchange rates in the short as well as over the long run. Drawing on monthly data for several advanced economies from 1971 to 2019 and resorting to a simple structural vector error correction (SVEC) model, we find that a shock leading to a temporary increase in U.S. nominal interest rates leads to a temporary appreciation of the USD against the other currencies. In turn, a monetary policy shock leading to a permanent rise in nominal interest rates - e.g., one associated with a normalisation of monetary policy after a long period at the zero lower bound - results in a depreciation of the USD, in the short as well as over the long run that may contribute to higher (not lower) inflation also in the short run.