Monetary policy transparency and real exchange rate adjustment

Abstract

We study the effect of different attributes of monetary policy transparency on real exchange rate adjustment by estimating the half-life of the real exchange rate.After controlling for sample-selection bias, results from the panel error-correction model suggest that the economic aspect of transparency facilitates real exchange rate adjustment in non-industrial countries. The driving force behind this finding is that economic transparency enhances nominal exchange rate adjustment. However, none of the different attributes of monetary policy transparency significantly affect real exchange rate adjustment in industrial countries. Failure to control for sample-selection bias over-rejects the null hypothesis.