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Measuring monetary policy in open economies

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  • Cerdeiro, Diego A.

Abstract

The paper extends Bernanke and Mihov's [6] closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. Implementation of this strategy to the case of Argentina provides the stylized facts necessary to choose among competing theoretical models of this economy. In addition to studying the effects of monetary policy innovations, the present study sheds light on the endogenous component of monetary policy. In this regard, the paper finds that, notwithstanding the relative stability of the exchange rate and the accumulation of large amounts of international reserves, the central bank in Argentina has been far from absorbing balance of payments shocks in a currency-board fashion. The growing level of international reserves can be rationalized, instead, as the monetary authority's response to terms of trade, supply and domestic currency demand shocks.

Suggested Citation

  • Cerdeiro, Diego A., 2010. "Measuring monetary policy in open economies," Policy Research Working Paper Series 5252, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5252
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    Cited by:

    1. Kishan Abeygunawardana & Chandranath Amarasekara & C. D. Tilakaratne, 2017. "Macroeconomic Effects of Monetary Policy Shocks," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(1), pages 21-38, March.
    2. Carrillo Julio A. & Elizondo Rocío, 2015. "How Robust Are SVARs at Measuring Monetary Policy in Small Open Economies?," Working Papers 2015-18, Banco de México.
    3. Jiménez Polanco, Miguel Alejandro & Paredes Encarnación, Evelio & Ramírez de León, Francisco, 2014. "Monetary Policy Effects in Output and Prices: Evidence for the Dominican Republic using a Structural VAR approach," MPRA Paper 75913, University Library of Munich, Germany.

    More about this item

    Keywords

    Currencies and Exchange Rates; Debt Markets; Economic Stabilization; Emerging Markets; Economic Theory&Research;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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