Monetary Shocks and Real Exchange Rate Hysteresis: Evidence from the G-7 Countries |
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Authors: | David Rapach |
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Affiliation: | Albers School of Business and Economics, SeattleUniversity, USA |
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Abstract: | Long-run monetary neutrality specifies that nominal disturbances do not affect long-run real exchange rates. However, the "over depreciation" of the US dollar in the late 1980s, after its strong appreciation earlier in the decade, suggested to a number of observers that nominal disturbances alter long-run real exchange rates; that is, money supply shocks entail real exchange rate hysteresis. Using data from the G-7 countries and the post-1973 float, the paper measures the long-run effects of relative money supply disturbances on real US dollar exchange rates. Little evidence of hysteretic monetary policy effects is found. |
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