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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using Figh Frequency Data
Jon Faust; John H. Rogers; Eric Swanson; Jonathan H. Wright
2002-739  (October 2002)

Abstract:  This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.

Full paper (407 KB PDF)

Keywords
vector autoregression, identification

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Last update: August 21, 2002