Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of the Exchange Rate

25 Pages Posted: 13 Dec 2005

See all articles by Frank Smets

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: June 1997

Abstract

In the identified VAR literature the role of the exchange rate in measuring monetary policy shocks has often been neglected. However, many open economies find it useful to target the exchange rate. In such a regime exchange rate innovations will better capture domestic monetary policy shocks. This paper first estimates the weight on the ECU exchange rate in France, Germany and Italy under the ERM regime. Next, these weights are used to identify a typical monetary policy shock in these countries and analyse its effects on output, inflation, the interest rate and the exchange rate.

Suggested Citation

Smets, Frank, Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of the Exchange Rate (June 1997). BIS Working Paper No. 42, Available at SSRN: https://ssrn.com/abstract=860664 or http://dx.doi.org/10.2139/ssrn.860664

Frank Smets (Contact Author)

European Central Bank (ECB) ( email )

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KU Leuven - Center for Economic Studies ( email )

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