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Title: |
Monetary Policy and the Exchange Rate: The Role of Openness |
| Author: |
Karras,
Georgios |
| Author
Affiliation: |
U IL, Chicago |
| Source: |
International Economic Journal, Summer 1999, v. 13, no. 2, pp. 75-88 |
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Publication Date: |
Summer 1999 |
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Abstract: |
This paper examines whether the effects of
monetary policy on the exchange rate depend on the openness of the
economy. Theoretically, openness can be shown to have an ambiguous
effect on the ability of money to influence the exchange rate, so the
issue has to be resolved empirically. Using annual data from the
1953-1990 period for a panel of 37 countries, the empirical results
indicate that the effects of monetary policy on the rate are negatively
affected the economy's openness. Therefore, the more open the economy,
the smaller the (short-run) depreciation effects of a given increase in
the money growth rate (in the long run, relative PPP applies). This
finding is robust to a number of different specifications. |
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