Template-type: ReDIF-Paper 1.0
Author-Name: John Bluedorn
Author-Email: john.bluedorn@economics.ox.ac.uk
Author-Workplace-Name: Nuffield College and Department of Economics, University of Oxford
Author-Workplace-Homepage: http://www.nuffield.ox.ac.uk/economics/
Author-Name: Christopher Bowdler
Author-Email: christopher.bowdler@economics.ox.ac.uk.ox.ac.uk
Author-Workplace-Name: Nuffield College and Department of Economics, University of Oxford
Author-Workplace-Homepage: http://www.nuffield.ox.ac.uk/economics/
Title: The Open Economy Consequences of U.S. Monetary Policy
Abstract: We characterize the channels by which a
failure to distinguish intended/unintended and
anticipated/unanticipated monetary policy may lead to attenuation
bias in monetary policy's open economy effects. Using a U.S.
monetary policy measure which isolates the intended and
unanticipated component of federal funds rate changes, we quantify
the magnitude of the attenuation bias for the exchange rate and
foreign variables, finding it to be substantial. The exchange rate
appreciation following a monetary contraction is up to 4 times
larger than a recursively-identified VAR estimate. There is stronger
evidence of foreign interest rate pass-through. The
expenditure-reducing effects of a U.S. monetary policy contraction
dominate any expenditure-switching effects, leading to a positive
conditional correlation of international outputs and prices.
Classification-JEL: E52, F31, F41
Length: 44 pages
Creation-Date: 2006-06-01
Number: 2006-W04
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2006/w4/opecon-usmp.2006.06.01.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0604