Measuring Monetary Policy in Open Economies

Diego, Cerdeiro (2010): Measuring Monetary Policy in Open Economies.

Abstract

The paper extends Bernanke and Mihov’s (1998) closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. The results that the identification strategy yields when applied to the data of a small and open economy are free of the empirical anomalies previously found in the literature.

• Item Type: MPRA Paper
• Language: English
• Keywords: Identification, Structural Vector Autoregressions, Open economy, Monetary policy shock, Foreign Exchange Intervention, Endogenous monetary policy.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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