Monetary policy and exchange rate uncertainty
Gain insights about how money tightening policies of central banks and other global indicators influence exchange rate volatility and businesses' FX risk The second essay focuses on the impact of monetary policy on exchange rate volatility from a narrower perspective. The analysis zeros in on the immediate Abstract. We analyze the contribution of the real exchange rate to the macroeconomic volatility of Czech economy and its role in cushioning economic Sep 19, 2019 The second is an unweighted sum of percentage exchange rate depreciation and loss of reserves deflated by monetary base. The final measure Feb 24, 2019 Finally, we explore how changes in monetary policy regimes (pre- and post- global crisis) have affected market uncertainty about exchange rate The Taylor rule generates larger fluctuations of inflation and output gap, as the larger volatility of exchange rates increases the risk premium. The opposite is true "perverse” reactions of the exchange rate to monetary policy are mainly market volatility and scheduled news announcements using intra-day data, which find
Keywords: optimal monetary policy, parameter uncertainty from September 1980 to December 1997, except for the real exchange rate equation, which was
Exchange rate levels and fluctuations are key economic variables that affect international trade and investment. The analysis reveals that monetary policy uncertainty in the United States tends to increase the variance of exchange rates in some Asian countries, but has no systematic effect on exchange rate levels. We show that these excess returns (i) are higher for currencies with higher interest rate differentials vis‐à‐vis the United States, (ii) increase with uncertainty about monetary policy, and (iii) increase further when the Federal Reserve adopts a policy of monetary easing. We construct new measures of uncertainty about Federal Reserve policy actions and their consequences -- monetary policy uncertainty (MPU) indexes. We show that, under a variety of VAR identification schemes, positive shocks to uncertainty about monetary policy robustly raise credit spreads and reduce output. This paper analyzes monetary policy implementation under an Inflation Targeting (IT) regime in Thailand. The paper applies the Bayesian Maximum Likelihood estimation to a small open economy model, proposed by Lubik and Schorfheide (2007).The study examines whether or not the Bank of Thailand (BOT) considers exchange rate movement, which is uncertain, in setting the policy rate.
"perverse” reactions of the exchange rate to monetary policy are mainly market volatility and scheduled news announcements using intra-day data, which find
This paper assesses the impact of economic policy uncertainty to UK monetary policy stance and exchange rate movements in light of the UK’s decision to leave the European Union. Our results show that the economic significance of exchange rate movements heightens during the Referendum period. We propose a theory of exchange rate determination based on exogenous risk factors in which the link between risk and the nominal exchange rate is guided by monetary policy through interest-rate rules. 2 The aim is to understand the role of exogenous risk factors in explaining the main regularities that we observe in international finance. Risk, Uncertainty and Exchange Rates Robert J. Hodrick. NBER Working Paper No. 2429 (Also Reprint No. r1284) Issued in November 1987 NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program This paper explores a new direction for empirical models of exchange rate determination. This Economic Letter summarizes the papers presented at the conference “Asset Prices, Exchange Rates, and Monetary Policy” held at Stanford University on March 2-3, 2001, under the joint sponsorship of the Federal Reserve Bank of San Francisco and the Stanford Institute for Economic Policy Research.
Risk, Uncertainty and Exchange Rates Robert J. Hodrick. NBER Working Paper No. 2429 (Also Reprint No. r1284) Issued in November 1987 NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program This paper explores a new direction for empirical models of exchange rate determination.
A monetary union in many ways resembles a fixed-exchange-rate regime, The apparently small effect of exchange-rate uncertainty might be due to the fact Sometimes other variables, such as the exchange rate, are also included. Given a specification of the central bank's objective, the coefficients in the rule can be. uncertainty in monetary policy means that such returns are materialized irrespective of the interest rates set by the Fed upon the announcement. We thus interpret the impact of monetary policy uncertainty on currency excess returns as a “pre-announcement” effect. Exchange Rates and Monetary Policy Uncertainty∗ PhilippeMueller† Alireza Tahbaz-Salehi‡ AndreaVedolin§ December 2015 Abstract We document that a trading strategy that is short the U.S. dollar and long other currencies to monetary policy uncertainty is higher for currencies with larger interest rate differentials vis-a-vis the United States. This is due to the fact that, even` though an increase in the interest rate differential induces an exchange rate We show that these excess returns (i) are higher for currencies with higher interest rate differentials vis‐à‐vis the United States, (ii) increase with uncertainty about monetary policy, and (iii) increase further when the Federal Reserve adopts a policy of monetary easing. Exchange Rates and Monetary Policy Uncertainty We document that a trading strategy that is short the U.S. dollar and long other currencies exhibits significantly larger excess returns on days with scheduled Federal Open Market Committee (FOMC) announcements.
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
exchange rate is allowed to float, monetary policy cannot be entirely independent cially if it leads to volatility and uncertainty in real exchange rates. Monetary This paper focuses on monetary and exchange rates policies. accentuated financial instability and political uncertainty despite the short-term contractionary. Keywords: optimal monetary policy, parameter uncertainty from September 1980 to December 1997, except for the real exchange rate equation, which was uncertainty sharply depreciates the local currency of EMEs, leads to a decline the monetary policy instrument to an increase in the foreign interest rate spread. exchange rate changes, oil prices decline in response to unexpected tightening of monetary policy.3. When monetary policy uncertainty increases, economic Monetary policies are tools which affect exchange rate by changing the supply of degree of uncertainty about the future boom of asset prices. High liquidity. Dec 24, 2003 Keywords: small open economy, optimal monetary policy, sticky prices, exchange rate peg, exchange rate volatility. JEL Classification Number:
Gain insights about how money tightening policies of central banks and other global indicators influence exchange rate volatility and businesses' FX risk The second essay focuses on the impact of monetary policy on exchange rate volatility from a narrower perspective. The analysis zeros in on the immediate Abstract. We analyze the contribution of the real exchange rate to the macroeconomic volatility of Czech economy and its role in cushioning economic Sep 19, 2019 The second is an unweighted sum of percentage exchange rate depreciation and loss of reserves deflated by monetary base. The final measure Feb 24, 2019 Finally, we explore how changes in monetary policy regimes (pre- and post- global crisis) have affected market uncertainty about exchange rate The Taylor rule generates larger fluctuations of inflation and output gap, as the larger volatility of exchange rates increases the risk premium. The opposite is true "perverse” reactions of the exchange rate to monetary policy are mainly market volatility and scheduled news announcements using intra-day data, which find