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Countries Short Term Interest Rates Response to u.s. Monetary Policy Shock, Their Explanatory Elements and Type II Price Puzzle

Sharifvaghefi, Mahrad | 2013

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 44079 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Barakchian, Mahdi
  7. Abstract:
  8. There have been numerous papers worked on the effect of U.S. monetary policy on other countries macroeconomic variables; considering U.S. important role in the world economy. However, few papers focus on foreign countries monetary policy reactions to U.S. monetary policy. The main purpose of this dissertation is to find out how foreign countries policy makers react to U.S. monetary policy. In order to answer this question, we consider the effect of exogenous monetary policy shock on other countries’ short term interest rates. The second part of the dissertation focuses on which elements can explain the differences in countries’ monetary policy reaction. At last, we consider the effect of U.S. monetary policy on other countries price levels. Our results show that impossible trinity hypothesis, difference in central bank independence, and U.S. trade share of countries GDP can explain countries different reactions to U.S. monetary policy. In spite of our expectation, in most countries with negative effect of U.S. monetary policy on their short term interest rates, price level decreased in response to positive monetary policy shock. This anomaly can be considered as “type II price puzzle”
  9. Keywords:
  10. Monetary Policy ; Short Term Interest Rate ; Exogenous Monetary Policy ; Central Bank Independence ; Price Puzzle

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