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The role of monetary policy in managing the euro - dollar exchange rate

By Nikolaos Mylonidis and Ioanna Stamopoulou

Abstract

The US Federal Reserve’s new relaxed monetary policy (the so-called quantitative easing) has triggered controversy among economists and policy makers about its effectiveness. This paper investigates the role of monetary policy in managing the euro – dollar exchange rate via alternative cointegration tests and impulse response functions. It is found that monetary fundamentals have neither long- nor short-run impact on the exchange rate. This implies that the Fed’s quantitative easing schemes are unlikely to have any significant impact on the euro – dollar rate.

Topics: E52 - Monetary Policy, F31 - Foreign Exchange
Year: 2011
OAI identifier: oai:mpra.ub.uni-muenchen.de:29291

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