Monetary Policy Transparency as an Exchange Rate Determinant: Evidence from the United States

Abstract

The lack in the literature regarding monetary policy transparency and its impact on exchange rates may be justified since no objective transparency indices existed until recently. This paper examines the impact of monetary policy transparency on the real effective exchange rate for the United States and finds that transparency decreases the real effective exchange rate. This study also finds that the impact of oil price on the real effective exchange rate is negative. Finally, it was found that, while domestic deficits and debt have a negative impact on the real effective exchange rate, foreign deficits and debt have the opposite effect.