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Monetary Shocks and Real Exchange Rate Hysteresis: Evidence from the G‐7 Countries
Author(s) -
Rapach David
Publication year - 2001
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00285
Subject(s) - economics , depreciation (economics) , monetary economics , float (project management) , exchange rate , liberian dollar , monetary policy , money supply , inflation (cosmology) , us dollar , hysteresis , neutrality , macroeconomics , finance , microeconomics , profit (economics) , physics , management , quantum mechanics , financial capital , theoretical physics , capital formation , philosophy , epistemology
Long‐run monetary neutrality specifies that nominal disturbances do not affect long‐run real exchange rates. However, the “over depreciation” of the US dollar in the late 1980s, after its strong appreciation earlier in the decade, suggested to a number of observers that nominal disturbances alter long‐run real exchange rates; that is, money supply shocks entail real exchange rate hysteresis. Using data from the G‐7 countries and the post‐1973 float, the paper measures the long‐run effects of relative money supply disturbances on real US dollar exchange rates. Little evidence of hysteretic monetary policy effects is found.