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SOME EMPIRICAL EVIDENCE ON THE EFFECTS
OF U.S. MONETARY POLICY SHOCKS
ON CROSS EXCHANGE RATES

Sarantis Kalyvitis
Athens University of Economics and Business

Ifigeneia Skotida
Bank of Greece and Athens University of Economics and Business

ABSTRACT

This paper examines the impact of U.S. monetary policy shocks on the cross exchange rates of sterling, yen and mark. The main finding of the paper is a ‘delayed overshooting’ pattern for all currency cross rates examined (sterling/yen, yen/mark and mark/sterling) following an unexpected U.S. monetary policy change, which in turn generates excess returns. We also provide evidence that the ‘delayed overshooting’ pattern in cross exchange rates is accompanied by asymmetric interventions by central banks in the foreign exchange markets under consideration triggered by U.S. monetary policy shocks.

Keywords: Monetary Policy; Delayed Overshooting; Foreign Exchange Intervention.

JEL classification: E52; F31.

Acknowledgements: Financial support through project ‘Pythagoras II’ co-financed by the European Social Fund and the Ministry of Education in Greece is gratefully acknowledged. We have benefited from useful discussions with S. Brissimis, H. Gibson, D. Kosma, A. Michaelides and E. Pappa on earlier drafts and from comments and suggestions by seminar participants at the Athens University of Economics and Business and the 5th Annual European Economics and Finance Society conference. The views expressed in this paper are those of the authors and do not necessarily reflect those of their respective institutions.

Correspondence:

Sarantis Kalyvitis
Department of International and European Economic Studies
Athens University of Economics and Business, 76 Patission Street
10434 Athens, Greece
Tel: +302108203273
Fax: +302108221011
Email: skalyvitis@aueb.gr


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