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Monetary policy and exchange rate anomalies in set‐identified SVARs : revisited

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Abstract
Set-identified vector autoregressions typically document violations of uncovered interest rate parity (forward discount puzzle) and gradual appreciation-depreciation cycles of exchange rates (delayed overshooting puzzle) following contractionary monetary policy shocks. We revisit both anomalies in a framework similar to Kim et al. (2017, JPE). We complement their identifying restrictions on how monetary policy affects the economy with restrictions on (i) how monetary policy reacts to the economy and (ii) historical monetary policy innovations. In this hybrid identification, no major forward discount premia emerge. Once we additionally impose that monetary policy propagates through domestic financial conditions, exchange rates also overshoot with less delay.
Keywords
Economics and Econometrics, Social Sciences (miscellaneous), credit spread, monetary policy shock, real exchange rate, set, identification, structural vector autoregression, STRUCTURAL VECTOR AUTOREGRESSIONS, AGNOSTIC IDENTIFICATION, CREDIT, SPREADS, RESTRICTIONS, INFERENCE, SIGN

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MLA
Rüth, Sebastian K., and Wouter Van der Veken. “Monetary Policy and Exchange Rate Anomalies in Set‐identified SVARs : Revisited.” JOURNAL OF APPLIED ECONOMETRICS, 2023, doi:10.1002/jae.2999.
APA
Rüth, S. K., & Van der Veken, W. (2023). Monetary policy and exchange rate anomalies in set‐identified SVARs : revisited. JOURNAL OF APPLIED ECONOMETRICS. https://doi.org/10.1002/jae.2999
Chicago author-date
Rüth, Sebastian K., and Wouter Van der Veken. 2023. “Monetary Policy and Exchange Rate Anomalies in Set‐identified SVARs : Revisited.” JOURNAL OF APPLIED ECONOMETRICS. https://doi.org/10.1002/jae.2999.
Chicago author-date (all authors)
Rüth, Sebastian K., and Wouter Van der Veken. 2023. “Monetary Policy and Exchange Rate Anomalies in Set‐identified SVARs : Revisited.” JOURNAL OF APPLIED ECONOMETRICS. doi:10.1002/jae.2999.
Vancouver
1.
Rüth SK, Van der Veken W. Monetary policy and exchange rate anomalies in set‐identified SVARs : revisited. JOURNAL OF APPLIED ECONOMETRICS. 2023;
IEEE
[1]
S. K. Rüth and W. Van der Veken, “Monetary policy and exchange rate anomalies in set‐identified SVARs : revisited,” JOURNAL OF APPLIED ECONOMETRICS, 2023.
@article{01H7B2XQ5X06Z29W12WP4PPVWN,
  abstract     = {{Set-identified vector autoregressions typically document violations of uncovered interest rate parity (forward discount puzzle) and gradual appreciation-depreciation cycles of exchange rates (delayed overshooting puzzle) following contractionary monetary policy shocks. We revisit both anomalies in a framework similar to Kim et al. (2017, JPE). We complement their identifying restrictions on how monetary policy affects the economy with restrictions on (i) how monetary policy reacts to the economy and (ii) historical monetary policy innovations. In this hybrid identification, no major forward discount premia emerge. Once we additionally impose that monetary policy propagates through domestic financial conditions, exchange rates also overshoot with less delay.}},
  author       = {{Rüth, Sebastian K. and Van der Veken, Wouter}},
  issn         = {{0883-7252}},
  journal      = {{JOURNAL OF APPLIED ECONOMETRICS}},
  keywords     = {{Economics and Econometrics,Social Sciences (miscellaneous),credit spread,monetary policy shock,real exchange rate,set,identification,structural vector autoregression,STRUCTURAL VECTOR AUTOREGRESSIONS,AGNOSTIC IDENTIFICATION,CREDIT,SPREADS,RESTRICTIONS,INFERENCE,SIGN}},
  language     = {{eng}},
  title        = {{Monetary policy and exchange rate anomalies in set‐identified SVARs : revisited}},
  url          = {{http://doi.org/10.1002/jae.2999}},
  year         = {{2023}},
}

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