Swiss Journal of Economics and Statistics/Schweizerische Zeitschrift fuer Volkswirtschaft und Statistik

Publication date: 1997-01
Volume: 133 Pages: 597 - 616
ISSN: 0303-9692
Publisher: Peter Lang AG


Smets, Frank


0104 Statistics


In the identified VAR literature the role of the exchange rate in measuring monetary policy shocks has often been neglected. However, many open economies find it useful to target the exchange rate. In such a regime exchange rate innovations will better capture domestic monetary policy shocks. This paper first estimates the weight on the ECU exchange rate in France, Germany and Italy under the ERM regime. Next, these weights are used to identify a typical monetary policy shock in these countries and analyse its effects on output, inflation, the interest rate and the exchange rate.