تاثیر سیاست های پولی بر نرخ ارز : شواهدی از سه اقتصاد کوچک باز

This paper studies the impact effect of monetary policy shocks on the exchange rate in Australia, Canada, and New Zealand during the 1990s. Shocks are identified by the reaction of three month market interest rates to policy announcements that were not themselves endogenous to economic news on the same day. The main result is that a 100 basis point contractionary shock will appreciate the exchange rate by 2–3 percent on impact. The association of interest rate hikes with depreciations that is sometimes observed during periods of exchange market pressure is mainly attributable to reverse causality.

The effect of monetary policy on exchange rates has been the subject of a large body of empirical research since the early 1990s.1 A central problem for this literature is the endogeneity of the variables that are used to measure monetary policy, and even of the policy actions themselves, to changes in the exchange rate or other economic news that might also affect exchange rates. For example, if interest rates are raised in response to a depreciation, the data might show a negative correlation between the level of interest rates and the value of the currency, even though the interest rate hike might have induced a recovery of the exchange rate or prevented it from depreciating further. This makes it very difficult to empirically assess the response of exchange rates to monetary policy, particularly in times when the exchange rate is under pressure. 2 This paper presents evidence on the impact effect of monetary policy shocks on exchange rates in three small open economies—Australia, Canada, and New Zealand—using an empirical approach that focuses on tackling the endogeneity problem. The strategy is to examine the immediate response of the exchange rate to shocks associated with particular policy actions, both during “normal” times and at times of pressure on the exchange rate. The cost of this approach is that it restricts attention to the impact reaction of policy shocks, and thus forgoes studying the dynamics of exchange rate adjustment after the initial reaction. The benefit is that the assumptions used to identify policy shocks are much weaker than those commonly used—minimizing, in particular, the risk of reverse causality. The methodological “parents” of this paper are the classic studies by Romer and Romer (1989) and Cook and Hahn (1989) on the effects of monetary policy actions on output and market interest rates, respectively. The methodology of these studies is extended in three dimensions. First, this paper attempts to measure the effect of policy shocks, rather than of the actions themselves, i.e. to disentangle the unanticipated and anticipated components of policy actions. This is achieved by using the change of a market interest rate (such as a 3-month Treasury Bill rate) on the day of a policy announcement as a measure of the “surprise” associated with a given announcement. Second, it attempts to identify policy events, through a careful reading of press reports and central bank statements, in which a policy action may have been a within-day reaction to economic news. These episodes are excluded from the main regressions (though they are included in the descriptive parts of the paper), to avoid an endogeneity problem via the policy reaction function. Third, to address measurement error due to non-policy economic shocks that happened to coincide with a policy announcement, the change in the underlying central bank policy variable to which the policy action refers is used as an instrument when regressing exchange rate changes on interest rate changes. The main results are as follows. On average—i.e. lumping all non-endogenous policy actions for each country into one sample—there is a significant response of the exchange rate to policy shocks in the direction traditionally assumed by economists (a contraction leads to an appreciation). Moreover, monetary policy shocks appear to affect the exchange rate in this direction even in times of turbulence. However, we also observe that in most cases in which monetary policy was tightened in response to exchange rate pressure on the same day, the initial depreciation to which the monetary authorities were reacting was not fully offset by a recovery by the end of the trading day. In other words, although monetary policy can have a stabilizing effect in times of turbulence, central banks usually end up partly accommodating exchange market pressure. This implies that correlations between daily exchange rate and interest rate changes which include episodes of exchange rate pressure, even when restricted to days on which policy announcements occurred, can easily give the false impression that interest rate hikes lead to exchange rate depreciation. In what follows, the proposed methodology is first justified in some detail. Next, we present the policy actions and data for the three countries studied, and discuss some features of their monetary policy regimes for the period under consideration. We subsequently present graphical summaries of the data, followed by regressions and robustness checks.

The main conclusion of this paper is that once endogeneity problems have been adequately dealt with, a significant relationship between exchange rates and monetary policy emerges in the direction that theory would commonly predict. Coefficient estimates for Australia, Canada and New Zealand imply that a monetary policy shock leading to a 1 percentage point increase in the 3-month interest rate will appreciate the exchange rate by 2–3 percent. Based on financial market reports, we could find no case in which raising interest rates to stabilize the exchange rate in times of turbulence backfired in the sense of triggering a further depreciation. However, on days when the policy action was prompted by pressure on the exchange rate on the same day, the recovery of the exchange rate was typically insufficient to make up for lost ground prior to the policy announcement. As a result, interest rate hikes prompted by exchange rate weakness frequently go together with exchange rate depreciations when both interest rate and exchange rate changes are measured over the entire day. While the exchange rates appear to react to monetary policy in the same direction regardless of whether or not the policy action was taken in response to financial turmoil, the results are not conclusive on whether the magnitude of the response is smaller in times of turbulence. Regression results suggest that the exchange rate reaction to policy shocks when the monetary authorities wanted to lean against a depreciation may be smaller than the average reaction. However this is based on a small sample which excluded most cases of heavy turbulence since these often trigger policy reactions on the same day and thus cannot be analyzed using daily data. A structural break test could not reject. In sum, the evidence presented in this paper supports the conventional view about the direction of the impact of interest rates on exchange rates during both normal times and times of turbulence. At the same time, the results suggest that the interest rate “costs” of resisting exchange rate pressure could be high: even assuming that the same coefficients apply to normal and turbulent times, offsetting a 10 percent depreciation would require an interest rate shock of about 500 basis points. This is consistent with the finding that in most cases, sudden exchange rate pressure was partly accommodated by the central banks studied in this paper.