پاسخ های سیاست های پولی به نرخ ارز: شواهد تجربی از ECB

The exchange rate is an important part of the transmission mechanism in the determination of monetary policy because movements in the exchange rate have significant effect on the macroeconomy. It can be difficult to measure the reaction of monetary policy to the movements of the exchange rate, due to the simultaneous response of monetary policy to the exchange rate and the possibility that both variables respond to several other variables. This study addresses these problems by using an identification method based on the heteroscedasticity in the high-frequency data. The results in this paper suggest that the ECB systematically responds to exchange rate movements but that quantitative effects are small. Such a significant but small reaction coefficient seems consistent with the hypothesis that the central banks do not target the fluctuations in the exchange rate but consider them only to the extent they impact on the expected inflation and output path.

There are three main channels through which the exchange rate affects the macroeconomy. Appreciation lowers real GDP because of expenditure switching, and further, it lowers inflation because the price of imported goods does not increase as rapidly with the appreciation of the currency (Taylor, 2001). Secondly, changes in the exchange rate also generate wealth effects that may have a significant impact on consumption and investment, both of which are components of aggregate demand. Because of households' inter-temporal smoothing behavior, a direct decrease in net wealth may lead to a drop in consumption. Lastly, depreciation can increase the value of collateral which may reduce agents' external financing constraints and enhance final spending in accordance with the “broad credit channel”. Because of these important impacts of the exchange rate on aggregate demand, output and inflation, which are components of policy rule, there may be a relationship between exchange rates and monetary policy rules. The main objective of this paper is to measure the response of monetary policy to the exchange rate in the Euro area and try to determine the role of the exchange rate in monetary policy. Although the monetary policy response to exchange rates has largely been studied in the empirical literature, there are some difficulties in measuring this effect. To begin with, while monetary policy is affected by changes in exchange rate, the exchange rate also responds to the changes in the monetary policy; i.e. there is a simultaneous response of both variables to each other, so, the direction of causality is difficult to establish. Moreover, there are other unobservable common factors affecting both short term interest rates and exchange rates, such as macroeconomic news and change in the risk preference. Hence, measurement is complicated due to the endogeneity problem and the possibility of relevant variables being omitted. There is considerable empirical literature on the exchange rate in a policy rule. However, general empirical studies ignore the endogeneity problem and eliminate numerous factors affecting interest rates and exchange rates. Most of them use the least square, two stages least square, VAR and IV approaches to estimate the response of interest rates. But these approaches cannot appropriately solve the problems mentioned above. Least square results are strongly biased; there are no obvious restrictions to identify monetary policy shocks in the VAR framework; and lastly, it is hard to find a proper instrument which affects the exchange rate without affecting interest rates. In this study, to address these problems, we apply a new identification approach developed by Rigobon (2003a), which argues that the response of monetary policy is based on the heteroscedasticity of exchange rate shocks. In particular shift in the importance of the exchange rate shocks relative to the monetary policy shocks thereby estimated changes in variance–covariance matrix between shocks make measure the responsiveness of monetary policy to exchange rate possible. Heteroscedasticity based identification is a relatively new method and this paper presents the first study to employ this approach to measure policy reactions to the exchange rate movements for ECB data. The impact of asset prices on the conduct of monetary policy debates has increased over the last decade. Taylor (2001) argues that a monetary policy rule that reacts directly to the exchange rate, as well as to inflation and output, sometimes works worse than policy rules that do not react directly to the exchange rate. However, Bernanke and Gertler, 1999 and Bernanke and Gertler, 2001 argue that monetary policy should react to asset price movements only to the extent warranted by their impact on expected inflation. On similar lines, Rigobon and Sack (2003) find that the Federal Reserve reacts significantly to changes in the stock market. Their findings suggest that policy-makers are reacting to asset price movements to the extent warranted by their implications for the economy. In the context of discussing the impact of asset prices on monetary policy, Jean-Claude Trichet, governor of the ECB from 2003 to 2011, stated that financial indicators (stock prices, housing prices, exchange rates) are also analyzed in depth and they are assessed in the context of maintaining price stability over the medium term: the ECB does not react to their signals unless price stability is endangered. Conversely, the empirical findings of this paper indicate that the ECB responds systematically to the exchange rate movements and the reaction coefficient is significantly negative but small. Since the estimated policy reaction coefficient is within reasonable range of the magnitude, it appears that the ECB reacts to exchange rate fluctuations only to offset the expected impact of exchange rate shocks on inflation and output. The paper proceeds as follows. Section 2 briefly describes the relevant studies in the literature and the contribution of this paper. Section 3 discusses the problems of simultaneous equations and omitted variables and demonstrates why other widely used identification methods are inappropriate in this context. Also, this section describes the identification approach based on the heteroscedasticity of exchange rate shocks. Section 4 gives information about the data and contains the empirical results. It also argues the policy implications of empirical results. Section 5 concludes with a summary.

Relatively little empirical evidence is available that estimates the impact of exchange rates on the conduct of monetary policy. Estimating the response of monetary policy to changes in the exchange rate is complicated by the endogeneity problem and the fact that both interest rates and the exchange rate react to many other variables. This paper provides new empirical findings on the impact of exchange rate movements on interest rates using daily and monthly data from the ECB between 1999 and 2010. Using the method of identification through heteroscedasticity developed by Rigobon (2003a), the reaction of policy to the exchange rate can be measured effectively when there are shifts in the variance of exchange rate shocks. This methodology takes into account the simultaneous response of both the interest rate and exchange rate to each other and common factors affecting both variables which widely used approaches in the literature might not be addressed. The empirical results indicate that monetary policy reacts significantly to changes in the exchange rate, with a 1 point rise (fall) in the exchange rate increasing the interest rate by 20 basis points. For daily and monthly time series, the exchange rate has a negative but small impact on the interest rate of ECB between 1999 and 2010. Such a significant but small policy reaction coefficient implies that ECB consider the fluctuations in exchange rate but not to target them. This is consistent with the suggestion that central banks may respond to the movements in asset prices only to the extent that they impact on the macroeconomy, since the exchange rate affects the expected inflation and output path as Taylor (2001) suggests.