Mylonidis, Nikolaos and Stamopoulou, Ioanna (2011): The role of monetary policy in managing the euro - dollar exchange rate.
Download (178kB) | Preview
The US Federal Reserve’s new relaxed monetary policy (the so-called quantitative easing) has triggered controversy among economists and policy makers about its effectiveness. This paper investigates the role of monetary policy in managing the euro – dollar exchange rate via alternative cointegration tests and impulse response functions. It is found that monetary fundamentals have neither long- nor short-run impact on the exchange rate. This implies that the Fed’s quantitative easing schemes are unlikely to have any significant impact on the euro – dollar rate.
|Item Type:||MPRA Paper|
|Original Title:||The role of monetary policy in managing the euro - dollar exchange rate|
|Keywords:||Exchange rates; Monetary model; Cointegration; Impulse response functions|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Nikolaos Mylonidis|
|Date Deposited:||08 Mar 2011 01:04|
|Last Modified:||03 Dec 2016 23:31|
van Aarle B., Boss M. and Hlouskova J. (2000). Forecasting the Euro exchange rate using vector error correction models, Review of World Economics, 136, 232–258.
Altavilla, C. (2008) The (UN-) stable relationship between the exchange rate and its fundamentals, Applied Economics Letters, 15, 539-544.
Bai, J. and Perron, P. (1998) Estimating and testing linear models with multiple structural changes, Econometrica, 66, 47–78.
Bai, J. and Perron, P. (2003) Computation and analysis of multiple structural change models, Journal of Applied Econometrics, 18, 1–22.
Beckmann, J., Belke A. and Kühl, M. (2010) The dollar-euro exchange rate and macroeconomic fundamentals: a time-varying coefficient approach, Review of World Economics (forthcoming).
Bilson, J. F. O. (1978) Rational expectations and the exchange rate, in The Economics of Exchange Rates (Eds) J. A. Frankel and H. G. Johnson, Addison- Wesley, Reading MA, pp. 75–96.
Dickey, D. and Fuller, W. (1979) Distribution of the estimates for autoregressive time series with a unit root, Journal of the American Statistical Association, 74, 427–431.
Dornbusch, R. (1976) Expectations and exchange rate dynamics, Journal of Political Economy, 84, 1161–76.
Elliott, G., Rothenber, T. J. and Stock, J. H. (1996) Efficient tests for an autoregressive unit root, Econometrica, 64, 813–836.
Frankel, J. (1979) On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Rate Differentials, American Economic Review, 69, 610-622.
Frenkel, J. A. (1976) A monetary approach to the exchange rate: doctrinal aspects and empirical evidence, in Exchange Rate Economics Volume I (Eds) R. MacDonald and M. P. Taylor, Cambridge University Press, Cambridge, pp. 147–71.
Frenkel, M. and Koske, I. (2004) How well can monetary factors explain the exchange rate of the euro?, Atlantic Economic Journal, International Atlantic Economic Society, 32, 233-244.
Gregory, A. W. and Hansen, B. E (1996) Residual-based tests for cointegration in models with regime shifts, Journal of Econometrics, 70, 99-126.
Johansen, S., Juselius, K. (1990) Maximum Likelihood Estimation and Inference on Cointegration-with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52, 169-210.
Johansen, S. (1991) Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models, Econometrica, 52, 388-402.
Meese, R. and Rogoff, K. (1983) Empirical Exchange Rate Models of the Seventies: Do they fit Out of Sample?, Journal of International Economics, 14, 3-24.
Pesaran, M. and Shin, Y. (1998) Generalized impulse response analysis in linear multivariate models, Economics Letters, 58, 17–29.
Pesaran, M. H., Shin, Y. and Smith R. J. (2001) Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16, 289-326.
Phillips, P. C .B. (1987) Time series regression with a unit root, Econometrica, 55, 277-301.