The open economy consequences of U.S. monetary policy |
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Authors: | John C Bluedorn Christopher Bowdler |
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Institution: | a Economics Division, School of Social Sciences, University of Southampton, Southampton SO17 1BJ, United Kingdomb Department of Economics and Oriel College, University of Oxford, Manor Road Building, Manor Road, Oxford OX1 3UQ, United Kingdom |
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Abstract: | We consider the open economy consequences of U.S. monetary policy, extending the identification approach of Romer and Romer (2004) and adapting it for use with asset prices. Intended policy changes are orthogonalized against the economy’s expected future path, which captures any effects from open economy variables. Estimated from a set of bilateral VARs, the dynamic responses of the exchange rate, foreign interest rate, and foreign output are consistent with recent work that identifies U.S. policy via futures market changes and a priori impulse response bounds. We compare the two approaches, finding important commonalities. We also outline some advantages of our approach. |
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Keywords: | E52 F31 F41 |
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