The Impact of Monetary Policyon the Exchange Rate : Evidence From Three Small Open Economies

This paper studies the impact effect of monetary policy shocks-identified by the reaction of three month market interest rates to policy announcements-on the exchange rate in Australia, Canada, and New Zealand during the 1990s. The main results are that (1) on average, a 100 basis point contractionary shock will appreciate the exchange rate by 2-3 percent on impact; (ii) seemingly "perverse" reactions of the exchange rate to monetary policy are mainly attributable to reverse causality; (iii) in a few instances, there were true "perverse" reactions of exchange rates to policy- generally, appreciations following expansionary shocks.
Publication date: August 2000
ISBN: 9781451856170
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Money and Monetary Policy , Money and Monetary Policy , exchange rate , monetary conditions , central bank

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