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"This paper addresses the impact of monetary policy on exchange rates during financial crises. Some observers have argued that a tightening of monetary policy is necessary to stabilize the exchange rate, restore confidence, and lay the groundwork for an eventual recovery of economic activity. Others have argued that by raising interest rates (which reduces the ability of borrowers to repay loans and thereby weakens the banking system), tightening may further reduce investor confidence and lead to further weakening--not strengthening--of domestic currencies. This debate, which became highly charged during the Asian financial crisis, remains unresolved. A key reason is that, because of the endogeneity of interest rates with respect to exchange rates and investor expectations, it is difficult to use statistical analysis to identify the impact of monetary policy on the exchange rate. In our research, we use measures of international credit spreads and of domestic stock prices as proxies for investor concerns about creditworthiness and country risk in order to better identify the impact of monetary policies on the exchange rate. Using weekly data from Indonesia, Korea, Malaysia, the Philippines, Thailand, and Mexico, we find that credit spreads and stock prices exert significant impacts on exchange rates during financial crises, but interest rates still are not estimated to have significant effects. We conclude that while monetary policy probably does exert an important influence over exchange rates, this most likely takes place slowly, as central banks attempt to establish credibility, and over longer periods of time than can be captured in our analysis"--Federal Reserve Board web site.
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The impact of monetary policy on exchange rates during financial crises
2000, Federal Reserve Board
Electronic resource
in English
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Book Details
Edition Notes
Includes bibliographical references.
Title from PDF file as viewed on 1/21/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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December 13, 2020 | Edited by MARC Bot | import existing book |
July 29, 2012 | Edited by VacuumBot | Updated format '[electronic resource] /' to 'Electronic resource' |
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April 24, 2009 | Edited by ImportBot | Found a matching Library of Congress MARC record |
April 1, 2008 | Created by an anonymous user | Imported from Scriblio MARC record |