British Academy: The UK's National Academy for the Humanities and Social Sciences
BA PDF Symposium 200626 April 2006 AbstractsDr Christopher BowdlerMonetary Policy in the Open Economy: An Empirical Resolution of the Exchange Rate PuzzleWe argue that endogenous and anticipated movements in interest rates lead to underestimates of the speed and magnitude of the exchange rate response to monetary policy. Employing the Romer and Romer (2004) exogenous monetary policy shock measure, we find that the effect of a one percentage point increase in the U.S. interest rate is up to twice as large and 3 times as fast as that obtained using the actual federal funds rate to identify monetary shocks. Moreover, new evidence from open economy VARs emphasises the adjustment role of the exchange rate. U.S. prices and output respond almost twice as quickly as they do in a closed economy VAR using the Romer and Romer shock measure. There is also evidence of stronger international transmission of U.S. monetary shocks. Overall, the estimated response speeds and magnitudes are more easily reconciled with existing models than previous empirical work. Dr Christopher Bowdler read Economics at Robinson College, Cambridge, before moving to Nuffield College, Oxford, where he obtained his D.Phil in Economics in 2003. Dr Bowdler is currently a British Academy Post-doctoral Fellow at Nuffield College, working principally on the empirical evaluation of the impact of monetary policy shocks on macroeconomic outcomes in the United States and other countries. Dr Bowdler teaches on the M.Phil Economics programme in Oxford and serves as co-editor of the Oxford Bulletin of Economics and Statistics, a major journal in the fields of macroeconomics and econometrics.
|