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New evidence on the effects of US monetary policy on exchange rates

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We examine the impact of US monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov [Quarterly Journal of Economics, 113 (1998) 869–902]. We find evidence for instantaneous, rather than delayed, US dollar overshooting after a monetary shock when relative output and relative prices are included in the VAR specification. The forward premium puzzle persists due to the interest rate differential response.

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en

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application/pdf

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http://eprints.lse.ac.uk/197/1/EconLetters_71%282%29.pdf

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