Monetary policy and exchange rate dynamics in the Spanish economy |
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Authors: | Javier Andrés Ricardo Mestre Javier Vallés |
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Institution: | University of Valencia, Edificio Oriental, Avénida de los Naranjos, E-46022 Valencia, Spain (e-mail: javier.andres@uv.es), ES European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt/Main, Germany, DE Research Department, Banco de Espa?a, Alcalá 50, E-28014 Madrid, Spain (e-mail: valles@bde.es), ES
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Abstract: | As the Spanish economy gets more integrated in international markets, the real exchange rate becomes a key determinant of
the monetary transmission. In this paper we trace out the dynamic response of prices, output and the exchange rate following
a monetary policy shock. We estimate a structural VAR model whose identification scheme is based on the long run properties
common to a large class of models. The results suggest that a small model with efficient asset markets plus nominal inertia
and long run monetary neutrality, captures the essential features of the monetary transmission mechanism in Spain. The interest
rate shock is well identified and the exchange rate overshoots its long run value. There are no signs of liquidity puzzle nor of price puzzle or exchange rate puzzle either. |
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Keywords: | JEL classification:E52 E40 E31 |
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