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The Empirics of International Monetary Transmission: Identification and the Impossible Trinity

The Empirics of International Monetary Transmission: Identification and the Impossible Trinity
The Empirics of International Monetary Transmission: Identification and the Impossible Trinity
The transmission of monetary policy across borders is central to many open economy models. Research has tried to evaluate the “impossible trinity” through estimating international interest rate linkages under alternative exchange rate regimes using realized base country interest rates. Such interest rates include anticipated and endogenous elements, which need not propagate internationally. We compare international interest rate responses under pegged and non-pegged regimes to identified, unanticipated and exogenous U.S. interest rate changes and realized U.S. interest rate changes. We find important differences in estimated transmission from the two sets of measures – identified interest rate changes demonstrate a greater concordance with the impossible trinity than realized rate changes
interest rate pass-through, monetary policy identification, open economy trilemma, exchange rate regimeJEL codes: F33, F41, F42
0022-2879
679-713
Bluedorn, John C.
f2ebe71c-2c3a-443b-a88c-659bcd483b3a
Bowdler, Christopher
7f89c248-64f6-4462-87fb-c14c4ac1a49c
Bluedorn, John C.
f2ebe71c-2c3a-443b-a88c-659bcd483b3a
Bowdler, Christopher
7f89c248-64f6-4462-87fb-c14c4ac1a49c

Bluedorn, John C. and Bowdler, Christopher (2010) The Empirics of International Monetary Transmission: Identification and the Impossible Trinity. Journal of Money, Credit & Banking, 42 (4), 679-713. (doi:10.1111/j.1538-4616.2010.00303.x).

Record type: Article

Abstract

The transmission of monetary policy across borders is central to many open economy models. Research has tried to evaluate the “impossible trinity” through estimating international interest rate linkages under alternative exchange rate regimes using realized base country interest rates. Such interest rates include anticipated and endogenous elements, which need not propagate internationally. We compare international interest rate responses under pegged and non-pegged regimes to identified, unanticipated and exogenous U.S. interest rate changes and realized U.S. interest rate changes. We find important differences in estimated transmission from the two sets of measures – identified interest rate changes demonstrate a greater concordance with the impossible trinity than realized rate changes

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Published date: June 2010
Keywords: interest rate pass-through, monetary policy identification, open economy trilemma, exchange rate regimeJEL codes: F33, F41, F42

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Local EPrints ID: 71061
URI: https://eprints.soton.ac.uk/id/eprint/71061
ISSN: 0022-2879
PURE UUID: 4f25bae9-143f-4a60-81f4-4b5cd6687f94

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Date deposited: 14 Jan 2010
Last modified: 19 Jul 2019 23:45

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