Monetary policy shocks and exchange rates in Asian countries |
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Affiliation: | 1. BK 21 Plus, Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Republic of Korea;2. Department of Economics, Seoul National University, 1 Gwanak-Ro, Gwanak-Gu, Seoul 08826, Republic of Korea;3. Asian Development Bank, Philippines;1. Ryutsu Keizai University, Chiba, Japan;2. Doctoral Institute for Evidence Based Policy, Tokyo, Japan;3. Tohoku University Graduate School of Dentistry, Department of International and Community Oral Health, Sendai, Japan;4. Chiba University, Center for Preventive Medical Sciences, Chiba, Japan;5. Harvard T. H. Chan School of Public Health. Department of Social and ‘Behavioral Sciences, Boston, USA;1. Department of Economics, Korea University, Anam-ro 145, Seongbuk-gu, Seoul, 02841, South Korea;2. Department of Economics and the Center for Distributive Justice in Institute of Economic Research, Seoul National University, Gwanak-ro 1, Gwanak-gu, Seoul, 08826, South Korea |
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Abstract: | In this paper, we empirically investigate the effects of monetary policy shocks on exchange rates in Asian countries. To do so, we use VAR models which impose sign restrictions on impulse responses to identify monetary policy shocks. We find that contractionary monetary policy shocks lead to significant exchange rate appreciation in Malaysia, the People’s Republic of China, and the Republic of Korea. However, in India, Indonesia, the Philippines and Thailand, we find either a significant depreciation or no significant effect. These results suggest that an interest rate increase (or decrease) may not necessarily shield Asian countries from exchange rate depreciation (or appreciation) pressure following a U.S. interest rate increase (or decrease). |
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Keywords: | Asia VAR Monetary policy shocks Exchange rate UIP condition Delayed overshooting Exchange rate puzzle Sign restrictions |
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