Measuring Monetary Policy in Open Economies

The paper extends Bernanke and Mihov's [6] closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allo...

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Main Author:	Cerdeiro, Diego A.
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ABSOLUTE VALUE ACCOUNTING ASSETS AUTOREGRESSION BALANCE OF PAYMENTS BALANCE SHEET BALANCE-OF-PAYMENTS CRISES BANK BONDS BONDS CAPITAL ACCOUNT CASH BALANCES CENTRAL BANK CENTRAL BANK ASSET CENTRAL BANKS CHECKING ACCOUNTS CHECKS CLOSED ECONOMY COMMERCIAL BANK COMMERCIAL BANKS COMMODITIES COMMODITY COMMODITY PRICE COMMODITY PRICES CONSUMPTION EXPENDITURES COVARIANCE MATRICES COVARIANCE MATRIX CREDIBILITY CURRENCY BOARD CURRENCY CRISES CURRENCY DEMAND CURRENCY SUPPLY CURRENCY TRANSACTION CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT SHOCK CURRENT ACCOUNT SHOCKS CURRENT ACCOUNT SURPLUS DEPENDENT VARIABLE DEPOSIT DEPRECIATION DEPRECIATION RATE DISCOUNT RATE DOLLAR VALUE DOMESTIC CURRENCIES DOMESTIC CURRENCY DOMESTIC FINANCIAL INSTITUTIONS DOMESTIC INTEREST RATE DOMESTIC INTEREST RATES DOMESTIC LIQUIDITY DOMESTIC PRICES ECONOMETRICS ECONOMIC CONDITIONS ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC THEORY ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM CONDITION EQUILIBRIUM CONDITIONS ERROR TERMS EXCESS DEMAND EXCESS LIQUIDITY EXCESS SUPPLY EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE TRANSACTIONS EXCHANGE-RATE EXOGENOUS VARIABLES EXPORTS EXTERNAL POSITION FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL SYSTEM FISCAL POLICY FISCAL SHOCKS FIXED EXCHANGE RATE FLEXIBLE EXCHANGE RATES FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTORS FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN INTEREST FOREIGN INTEREST RATES GDP GDP DEFLATOR GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROSS DOMESTIC PRODUCT HOLDINGS IMPORTS INCOME INDUSTRIAL COUNTRIES INFLATION INFLATION RATE INSTRUMENT INTEREST PARITY INTEREST RATE INTEREST-RATE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL RESERVES INTERPOLATION LENDERS LIABILITY LIQUIDITY LOCAL CURRENCY MACROECONOMIC MODELS MACROECONOMICS MARKET CONDITIONS MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY AUTHORITY MONETARY CONDITIONS MONETARY ECONOMICS MONETARY POLICIES MONETARY POLICY MONETARY TARGET MONETARY TRANSMISSION MONEY DEMAND MONEY SUPPLY MONIES NOMINAL INTEREST RATES OIL PRICE OPEN ECONOMIES OPEN ECONOMY OPEN MARKET OPEN MARKET OPERATION OPEN MARKET OPERATIONS OUTPUT POLICY ON EXCHANGE RATES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS PRICE INDEX RANDOM WALK RATE OF GROWTH REAL GROSS DOMESTIC PRODUCT REAL INTEREST REAL INTEREST RATE REJECTION REPOS RESPONSE TO SHOCKS SHORT-TERM INTEREST RATE SHORT-TERM INTEREST RATES SLOWDOWN STOCKS STRUCTURAL SHOCK STRUCTURAL SHOCKS SUPPLY SHOCK SUPPLY SHOCKS TIGHT MONETARY POLICY TOTAL RESERVES TRADE BALANCE TRADE DATA TRADE GROWTH TRADE SHOCK TRADE SHOCKS TRANSMISSION MECHANISM TREASURY UNANTICIPATED DEPRECIATION UNCERTAINTY VOLATILITY WORLD INTEREST RATES
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100326084211 http://hdl.handle.net/10986/3739

id	okr-10986-3739
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ABSOLUTE VALUE ACCOUNTING ASSETS AUTOREGRESSION BALANCE OF PAYMENTS BALANCE SHEET BALANCE-OF-PAYMENTS CRISES BANK BONDS BONDS CAPITAL ACCOUNT CASH BALANCES CENTRAL BANK CENTRAL BANK ASSET CENTRAL BANKS CHECKING ACCOUNTS CHECKS CLOSED ECONOMY COMMERCIAL BANK COMMERCIAL BANKS COMMODITIES COMMODITY COMMODITY PRICE COMMODITY PRICES CONSUMPTION EXPENDITURES COVARIANCE MATRICES COVARIANCE MATRIX CREDIBILITY CURRENCY BOARD CURRENCY CRISES CURRENCY DEMAND CURRENCY SUPPLY CURRENCY TRANSACTION CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT SHOCK CURRENT ACCOUNT SHOCKS CURRENT ACCOUNT SURPLUS DEPENDENT VARIABLE DEPOSIT DEPRECIATION DEPRECIATION RATE DISCOUNT RATE DOLLAR VALUE DOMESTIC CURRENCIES DOMESTIC CURRENCY DOMESTIC FINANCIAL INSTITUTIONS DOMESTIC INTEREST RATE DOMESTIC INTEREST RATES DOMESTIC LIQUIDITY DOMESTIC PRICES ECONOMETRICS ECONOMIC CONDITIONS ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC THEORY ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM CONDITION EQUILIBRIUM CONDITIONS ERROR TERMS EXCESS DEMAND EXCESS LIQUIDITY EXCESS SUPPLY EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE TRANSACTIONS EXCHANGE-RATE EXOGENOUS VARIABLES EXPORTS EXTERNAL POSITION FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL SYSTEM FISCAL POLICY FISCAL SHOCKS FIXED EXCHANGE RATE FLEXIBLE EXCHANGE RATES FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTORS FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN INTEREST FOREIGN INTEREST RATES GDP GDP DEFLATOR GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROSS DOMESTIC PRODUCT HOLDINGS IMPORTS INCOME INDUSTRIAL COUNTRIES INFLATION INFLATION RATE INSTRUMENT INTEREST PARITY INTEREST RATE INTEREST-RATE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL RESERVES INTERPOLATION LENDERS LIABILITY LIQUIDITY LOCAL CURRENCY MACROECONOMIC MODELS MACROECONOMICS MARKET CONDITIONS MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY AUTHORITY MONETARY CONDITIONS MONETARY ECONOMICS MONETARY POLICIES MONETARY POLICY MONETARY TARGET MONETARY TRANSMISSION MONEY DEMAND MONEY SUPPLY MONIES NOMINAL INTEREST RATES OIL PRICE OPEN ECONOMIES OPEN ECONOMY OPEN MARKET OPEN MARKET OPERATION OPEN MARKET OPERATIONS OUTPUT POLICY ON EXCHANGE RATES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS PRICE INDEX RANDOM WALK RATE OF GROWTH REAL GROSS DOMESTIC PRODUCT REAL INTEREST REAL INTEREST RATE REJECTION REPOS RESPONSE TO SHOCKS SHORT-TERM INTEREST RATE SHORT-TERM INTEREST RATES SLOWDOWN STOCKS STRUCTURAL SHOCK STRUCTURAL SHOCKS SUPPLY SHOCK SUPPLY SHOCKS TIGHT MONETARY POLICY TOTAL RESERVES TRADE BALANCE TRADE DATA TRADE GROWTH TRADE SHOCK TRADE SHOCKS TRANSMISSION MECHANISM TREASURY UNANTICIPATED DEPRECIATION UNCERTAINTY VOLATILITY WORLD INTEREST RATES
spellingShingle	ABSOLUTE VALUE ACCOUNTING ASSETS AUTOREGRESSION BALANCE OF PAYMENTS BALANCE SHEET BALANCE-OF-PAYMENTS CRISES BANK BONDS BONDS CAPITAL ACCOUNT CASH BALANCES CENTRAL BANK CENTRAL BANK ASSET CENTRAL BANKS CHECKING ACCOUNTS CHECKS CLOSED ECONOMY COMMERCIAL BANK COMMERCIAL BANKS COMMODITIES COMMODITY COMMODITY PRICE COMMODITY PRICES CONSUMPTION EXPENDITURES COVARIANCE MATRICES COVARIANCE MATRIX CREDIBILITY CURRENCY BOARD CURRENCY CRISES CURRENCY DEMAND CURRENCY SUPPLY CURRENCY TRANSACTION CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT SHOCK CURRENT ACCOUNT SHOCKS CURRENT ACCOUNT SURPLUS DEPENDENT VARIABLE DEPOSIT DEPRECIATION DEPRECIATION RATE DISCOUNT RATE DOLLAR VALUE DOMESTIC CURRENCIES DOMESTIC CURRENCY DOMESTIC FINANCIAL INSTITUTIONS DOMESTIC INTEREST RATE DOMESTIC INTEREST RATES DOMESTIC LIQUIDITY DOMESTIC PRICES ECONOMETRICS ECONOMIC CONDITIONS ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC THEORY ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM CONDITION EQUILIBRIUM CONDITIONS ERROR TERMS EXCESS DEMAND EXCESS LIQUIDITY EXCESS SUPPLY EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE TRANSACTIONS EXCHANGE-RATE EXOGENOUS VARIABLES EXPORTS EXTERNAL POSITION FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL SYSTEM FISCAL POLICY FISCAL SHOCKS FIXED EXCHANGE RATE FLEXIBLE EXCHANGE RATES FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTORS FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN INTEREST FOREIGN INTEREST RATES GDP GDP DEFLATOR GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROSS DOMESTIC PRODUCT HOLDINGS IMPORTS INCOME INDUSTRIAL COUNTRIES INFLATION INFLATION RATE INSTRUMENT INTEREST PARITY INTEREST RATE INTEREST-RATE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL RESERVES INTERPOLATION LENDERS LIABILITY LIQUIDITY LOCAL CURRENCY MACROECONOMIC MODELS MACROECONOMICS MARKET CONDITIONS MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY AUTHORITY MONETARY CONDITIONS MONETARY ECONOMICS MONETARY POLICIES MONETARY POLICY MONETARY TARGET MONETARY TRANSMISSION MONEY DEMAND MONEY SUPPLY MONIES NOMINAL INTEREST RATES OIL PRICE OPEN ECONOMIES OPEN ECONOMY OPEN MARKET OPEN MARKET OPERATION OPEN MARKET OPERATIONS OUTPUT POLICY ON EXCHANGE RATES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS PRICE INDEX RANDOM WALK RATE OF GROWTH REAL GROSS DOMESTIC PRODUCT REAL INTEREST REAL INTEREST RATE REJECTION REPOS RESPONSE TO SHOCKS SHORT-TERM INTEREST RATE SHORT-TERM INTEREST RATES SLOWDOWN STOCKS STRUCTURAL SHOCK STRUCTURAL SHOCKS SUPPLY SHOCK SUPPLY SHOCKS TIGHT MONETARY POLICY TOTAL RESERVES TRADE BALANCE TRADE DATA TRADE GROWTH TRADE SHOCK TRADE SHOCKS TRANSMISSION MECHANISM TREASURY UNANTICIPATED DEPRECIATION UNCERTAINTY VOLATILITY WORLD INTEREST RATES Cerdeiro, Diego A. Measuring Monetary Policy in Open Economies
geographic_facet	Latin America & Caribbean Latin America & Caribbean
relation	Policy Research working paper ; no. WPS 5252
description	The paper extends Bernanke and Mihov's [6] closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. Implementation of this strategy to the case of Argentina provides the stylized facts necessary to choose among competing theoretical models of this economy. In addition to studying the effects of monetary policy innovations, the present study sheds light on the endogenous component of monetary policy. In this regard, the paper finds that, notwithstanding the relative stability of the exchange rate and the accumulation of large amounts of international reserves, the central bank in Argentina has been far from absorbing balance of payments shocks in a currency-board fashion. The growing level of international reserves can be rationalized, instead, as the monetary authority's response to terms of trade, supply and domestic currency demand shocks.
format	Publications & Research :: Policy Research Working Paper
author	Cerdeiro, Diego A.
author_facet	Cerdeiro, Diego A.
author_sort	Cerdeiro, Diego A.
title	Measuring Monetary Policy in Open Economies
title_short	Measuring Monetary Policy in Open Economies
title_full	Measuring Monetary Policy in Open Economies
title_fullStr	Measuring Monetary Policy in Open Economies
title_full_unstemmed	Measuring Monetary Policy in Open Economies
title_sort	measuring monetary policy in open economies
publishDate	2012
url	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100326084211 http://hdl.handle.net/10986/3739
_version_	1764388082987040768
spelling	okr-10986-37392021-04-23T14:02:12Z Measuring Monetary Policy in Open Economies Cerdeiro, Diego A. ABSOLUTE VALUE ACCOUNTING ASSETS AUTOREGRESSION BALANCE OF PAYMENTS BALANCE SHEET BALANCE-OF-PAYMENTS CRISES BANK BONDS BONDS CAPITAL ACCOUNT CASH BALANCES CENTRAL BANK CENTRAL BANK ASSET CENTRAL BANKS CHECKING ACCOUNTS CHECKS CLOSED ECONOMY COMMERCIAL BANK COMMERCIAL BANKS COMMODITIES COMMODITY COMMODITY PRICE COMMODITY PRICES CONSUMPTION EXPENDITURES COVARIANCE MATRICES COVARIANCE MATRIX CREDIBILITY CURRENCY BOARD CURRENCY CRISES CURRENCY DEMAND CURRENCY SUPPLY CURRENCY TRANSACTION CURRENT ACCOUNT CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT SHOCK CURRENT ACCOUNT SHOCKS CURRENT ACCOUNT SURPLUS DEPENDENT VARIABLE DEPOSIT DEPRECIATION DEPRECIATION RATE DISCOUNT RATE DOLLAR VALUE DOMESTIC CURRENCIES DOMESTIC CURRENCY DOMESTIC FINANCIAL INSTITUTIONS DOMESTIC INTEREST RATE DOMESTIC INTEREST RATES DOMESTIC LIQUIDITY DOMESTIC PRICES ECONOMETRICS ECONOMIC CONDITIONS ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC THEORY ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM CONDITION EQUILIBRIUM CONDITIONS ERROR TERMS EXCESS DEMAND EXCESS LIQUIDITY EXCESS SUPPLY EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE TRANSACTIONS EXCHANGE-RATE EXOGENOUS VARIABLES EXPORTS EXTERNAL POSITION FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL SYSTEM FISCAL POLICY FISCAL SHOCKS FIXED EXCHANGE RATE FLEXIBLE EXCHANGE RATES FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTORS FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN INTEREST FOREIGN INTEREST RATES GDP GDP DEFLATOR GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROSS DOMESTIC PRODUCT HOLDINGS IMPORTS INCOME INDUSTRIAL COUNTRIES INFLATION INFLATION RATE INSTRUMENT INTEREST PARITY INTEREST RATE INTEREST-RATE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL RESERVES INTERPOLATION LENDERS LIABILITY LIQUIDITY LOCAL CURRENCY MACROECONOMIC MODELS MACROECONOMICS MARKET CONDITIONS MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY AUTHORITY MONETARY CONDITIONS MONETARY ECONOMICS MONETARY POLICIES MONETARY POLICY MONETARY TARGET MONETARY TRANSMISSION MONEY DEMAND MONEY SUPPLY MONIES NOMINAL INTEREST RATES OIL PRICE OPEN ECONOMIES OPEN ECONOMY OPEN MARKET OPEN MARKET OPERATION OPEN MARKET OPERATIONS OUTPUT POLICY ON EXCHANGE RATES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS PRICE INDEX RANDOM WALK RATE OF GROWTH REAL GROSS DOMESTIC PRODUCT REAL INTEREST REAL INTEREST RATE REJECTION REPOS RESPONSE TO SHOCKS SHORT-TERM INTEREST RATE SHORT-TERM INTEREST RATES SLOWDOWN STOCKS STRUCTURAL SHOCK STRUCTURAL SHOCKS SUPPLY SHOCK SUPPLY SHOCKS TIGHT MONETARY POLICY TOTAL RESERVES TRADE BALANCE TRADE DATA TRADE GROWTH TRADE SHOCK TRADE SHOCKS TRANSMISSION MECHANISM TREASURY UNANTICIPATED DEPRECIATION UNCERTAINTY VOLATILITY WORLD INTEREST RATES The paper extends Bernanke and Mihov's [6] closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. Implementation of this strategy to the case of Argentina provides the stylized facts necessary to choose among competing theoretical models of this economy. In addition to studying the effects of monetary policy innovations, the present study sheds light on the endogenous component of monetary policy. In this regard, the paper finds that, notwithstanding the relative stability of the exchange rate and the accumulation of large amounts of international reserves, the central bank in Argentina has been far from absorbing balance of payments shocks in a currency-board fashion. The growing level of international reserves can be rationalized, instead, as the monetary authority's response to terms of trade, supply and domestic currency demand shocks. 2012-03-19T18:38:57Z 2012-03-19T18:38:57Z 2010-03-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100326084211 http://hdl.handle.net/10986/3739 English Policy Research working paper ; no. WPS 5252 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper Latin America & Caribbean Latin America & Caribbean

Measuring Monetary Policy in Open Economies

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