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Openness and the Effects of Monetary Policy on the Exchange Rates: An Empirical Analysis

Author

Listed:
  • Islk, Nihat

    (Selçuk University, Turkey)

  • Acar, Mustafa

    (Kýrýkkale University, Turkey)

Abstract

This paper examines whether the effects of monetary policy on the exchange rates depend on the degree of openness of an economy. Theoretically, it can be shown that the effect of openness on the ability of money to influence the exchange rate is ambiguous. In light of this, the purpose of this study is to investigate how the relationship between monetary policy and exchange rate is affected by openness, hence shedding some light on the theoretical ambiguity. Using annual data for a panel of 41 countries for the period 1988-2000, the paper’s empirical results indicate that the effects of monetary policy on the exchange rates are negatively affected by economy’s openness. It seems that the more open the economy, the smaller is the depreciation effects of a given increase in the money growth rate. More interestingly, contrary to conventional expectations, monetary expansions in developed countries do not seem to result in depreciation of the domestic currency.

Suggested Citation

  • Islk, Nihat & Acar, Mustafa, 2005. "Openness and the Effects of Monetary Policy on the Exchange Rates: An Empirical Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 52-67.
    • Handle: RePEc:ris:integr:0305
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    Cited by:

    1. Ahmed, Walid M.A., 2020. "Stock market reactions to domestic sentiment: Panel CS-ARDL evidence," Research in International Business and Finance, Elsevier, vol. 54(C).
    2. Mehmet Barıs Aslan, 2020. "An Econometric Analysis on the Relationship of Economic Liberalization with Real Exchange Rate," Bingol University Journal of Economics and Administrative Sciences, Bingol University, Faculty of Economics and Administrative Sciences, vol. 4(2), pages 271-290, December.

    More about this item

    Keywords

    Openness; monetary policy; exchange rate;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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