Replication files for ``The Effects of Permanent Monetary Shocks on Exchange Rates and Uncovered Interest Rate Differentials'' forthcoming in Journal of International Economics.
Title: The Effects of Permanent Monetary Shocks on Exchange Rates and Uncovered Interest Rate Differentials Authors: Stephanie Schmitt-Grohe and Martin Uribe Publication: Journal of International Economics Today's date: November 13, 2021 This paper shows that in a new Keynesian model of the open economy with portfolio adjustment costs a permanent increase in the nominal interest rate causes in the short run a depreciation of the nominal and real exchange rates and a deviation from uncovered interest rate parity against the tightening country. These effects have the opposite sign than those associated with transitory increases in the nominal interest rate. The paper then estimates an empirical model of exchange rates and uncovered interest rate differentials with permanent and transitory U.S. monetary policy shocks on post-Bretton-Woods data from the United States, the United Kingdom, Japan, and Canada. The estimated impulse responses to permanent monetary shocks are shown to be qualitatively consistent with the predictions of the theoretical model. This dataset contains the Matlab code and the data to replicate all Figures and Tables in the paper. A readme file explains how to execute the codes.