Use this URL to cite or link to this record in EThOS: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.633663
Title: On the international transmission of monetary policy : a parsimonious structural VECM approach for interdependent economies
Author: Heinlein, Reinhold
Awarding Body: University of Kent
Current Institution: University of Kent
Date of Award: 2013
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Abstract:
Effects of Monetary Policy on the $/£ Exchange Rate. Is There a 'Delayed Overshooting Puzzle'? (Review of International Economics, 20(3), 443-467, 2012, with H.-M. Krolzig) The determination of the $/£ exchange rate is studied in a small symmetric macro econometric model Including UK-US differentials in inflation, output gap, short and long-term interest rates for the four decades since the breakdown of Bretton Woods. The key question addressed is the possible presence of a 'delayed overshooting puzzle' in the dynamic reaction of the exchange rate to monetary policy shocks. In contrast to the existing literature, we follow a data-driven modelling approach combining (i) a VAR based cointegration analysis with (ii) a graph-theoretic search for instantaneous causal relations and (iii) an automatic general-to-specific approach for the selection of a congruent parsimonious structural vector equilibrium correction model. We find that the long-run properties of the system are characterized by four cointegration relations and one stochastic trend, which is identified as the longterm interest rate differential and that appears to be driven by long-term inflation expectations as in the Fisher hypothesis. It cointegrates with the inflation differential to a stationary 'real' long-term rate differential and also drives the exchange rate. The short-run dynamics are characterized by a direct link from the short-term to the long-term interest rate differential. Jumps in the exchange rate after short-term interest rate variations are only significant at 10%. Overall, we find strong evidence for delayed overshooting and violations of UIP in response to monetary policy shocks.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID: uk.bl.ethos.633663  DOI: Not available
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