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Monetary policy flexibility in floating exchange rate regimes : currency denomination and import shares
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Troeger, Vera (2013) Monetary policy flexibility in floating exchange rate regimes : currency denomination and import shares. Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2012 (Number 82).
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Text (Working paper)
WRAP_82.2012_troeger.pdf - Published Version Download (827Kb) | Preview |
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
This paper argues that the degree of monetary flexibility a government enjoys does not
only depend on the implemented monetary institutions such as exchange rate arrangements
and central bank independence but also on the economic and financial relationships with
key currency areas. I develop a formal theoretical framework explaining the degree of
monetary independence in open economies under flexible exchange rate regimes by
trading relations and financial integration. The model suggests that a) higher import shares
from the key currency area increase the imported inflation when monetary authorities try to
offset an exogenous shock by cutting back the interest rate while the base country does not
encounter a similar shock, and b) the more cross border assets of a country are
denominated in the base currency the higher the exchange rate effects of interest rate
differences to the interest rate of the key currency area. The presented empirical evidence
largely supports the theoretical predictions.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Monetary policy, Economic policy, Foreign exchange rates, Banks and banking, Central, Money | ||||
Series Name: | CAGE Online Working Paper Series | ||||
Publisher: | Department of Economics, University of Warwick | ||||
Place of Publication: | Coventry, UK | ||||
Official Date: | March 2013 | ||||
Dates: |
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Volume: | Volume 2012 | ||||
Number: | Number 82 | ||||
Number of Pages: | 47 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Date of first compliant deposit: | 1 August 2016 | ||||
Date of first compliant Open Access: | 1 August 2016 |
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