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Monetary policy effects on output and exchange rates: Results from US, UK and Japan

Author

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  • Mustafa Caglayan

    (Department of Economics, The University of Sheffield)

  • Kostas Mouratidis

    (Department of Economics, The University of Sheffield)

  • Elham Saeidinezhad

    (Department of Economics, The University of Sheffield)

Abstract

We investigate the effects of "contractionary" monetary shocks by imposing sign restrictions on the impulse responses of macroeconomic variables up to six months while allowing industrial production and exchange rate to be completely determined by the data. We show that i) the effect of an adverse monetary policy shock on industrial production is ambiguous; ii) there is price puzzle for Japan and UK which we conjecture as an outcome of excessive bank lending and poor regulation but not of passive monetary policy; ii) there is delayed overshooting puzzle for Japan and the exchange rate puzzle for the UK and the US.

Suggested Citation

  • Mustafa Caglayan & Kostas Mouratidis & Elham Saeidinezhad, 2011. "Monetary policy effects on output and exchange rates: Results from US, UK and Japan," Working Papers 2011016, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2011016
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary shocks; business cycles; exchange rate puzzle; price puzzle; vector autoregression;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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