The Impact of Monetary Policyon the Bilateral Exchange Rate: Chile Versus the United States

Author/Editor:

Jeromin Zettelmeyer

Publication Date:

April 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the change in the exchange rate following a policy announcement on changes in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.

Series:

Working Paper No. 2003/071

Subject:

Central bank policy rate Deposit rates Exchange rate policy Exchange rates Financial services Foreign exchange Market interest rates

English

Publication Date:

April 1, 2003

ISBN/ISSN:

9781451849264/1018-5941

Stock No:

WPIEA0712003

Pages:

23

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