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The Impact of Monetary Policy on the Bilateral Exchange Rate: Chile Versus the United States

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  • Jeromin Zettelmeyer

Abstract

This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the variation in the exchange rate following a policy announcement on variations in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month Treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.

Suggested Citation

  • Jeromin Zettelmeyer, 2003. "The Impact of Monetary Policy on the Bilateral Exchange Rate: Chile Versus the United States," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(2), pages 29-43, August.
    • Handle: RePEc:chb:bcchec:v:6:y:2003:i:2:p:29-43
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    Cited by:

    1. Hoda SELIM, 2010. "Fear of Floating and Exchange Rate Pass-Through to Inflation in Egypt," EcoMod2010 259600151, EcoMod.

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