Liquidity effects and exchange rate: Empirical evidence on the effects of monetary shocks on the exchange rate.
Item
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Title
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Liquidity effects and exchange rate: Empirical evidence on the effects of monetary shocks on the exchange rate.
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Identifier
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AAI9605663
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identifier
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9605663
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Creator
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Siokis, Fotios M.
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Contributor
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Adviser: Salih Neftci
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Date
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1995
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General | Economics, Theory
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Abstract
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This paper presents first, an equilibrium model allowing for liquidity effects. We then present some new empirical evidence on liquidity effects in open economies. We consider money supply as the measure of monetary shocks in the economy. Using data from the flexible exchange era, we find that expansionary shocks to the U.S. monetary policy lead (in the short-run) to a decline in the interest rate and to a depreciation of the U.S. dollar. In addition, we find that the exchange rate overshoots in the short-run and then settles to its long-run equilibrium point. Then, we consider the other non-U.S. G-7 Countries' monetary policy by identifying their monetary policy with orthogonalized shocks to their money supply. We report an "exchange rate puzzle" in some of the countries: an expansionary shock to the other non-U.S. G-7 Countries lead to an impact appreciation of their currencies. We try to solve that puzzle by using reserves as a measure of their monetary policy. In addition, we consider nonstationarity and possible cointegration relations among the variables. In all VAR systems at hand, cointegration relationship is evident and the construction of VEC system is appropriate. The deployments of impulse response functions from VEC systems show that the responses of the other non-U.S. G-7 Currencies to an innovation in their money supply are now (in most cases) consistent with the relevant economic theory.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
