Ankara : The Department of Economics, İhsan Doğramacı Bilkent University, 2011.Thesis (Master's) -- Bilkent University, 2011.Includes bibliographical references leaves 24-25.The exchange rate is an important part of transmission mechanism in the determination
of monetary policy because movements in the exchange rate has
signiÖcant e§ect on the macroeconomy. Measuring the reaction of monetary
policy to the movements in exchange rate has some di¢ culties due to the simultaneous
response of monetary policy on the exchange rate and the possibility
that both variables respond several other variables. This study will use
an identiÖcation method based on the heteroscedasticity in the high-frequency
data. In particular, shifts in the importance of exchange rate relative to monetary
policy shocks, and the estimated changes in the covariance between the
shocks that result, allow us to measure the reaction of interest rates to changes
in exchange rates. This study comes up with unbiased estimates with heteroscedasticity
based identiÖcation approach and results of this paper suggest
that ECB systematically respond to the exchange rate movements but that
quantitative e§ects are small. The empirical results indicate that a 1 point rise
(fall) in the exchange rate tends to decrease (increase) the three-month interest
rate by around 20 basis points. Small and negative reaction coe¢ cient implies
that ECB may respond to the movements in exchange rate only to the extent
warranted by their impact on the macroeconomy, since it a§ects the expected
ináation and future output path.Demir, İshakM.S
