The Impact of Monetary Regime Changes: Some Exchange Rate Evidence
Journal of Economic Behavior and Organization
Lucas has argued that coefficient changes can be explained by changing expectations caused by policy regime shifts. This paper provides evidence consistent with the Lucas critique. Using an efficient markets/news framework, Kalman Filter results show that surprise relative U.S. monetary expansion is associated both with periods of U.S. dollar depreciation and appreciation. I show that variables representing changes in monetary policy regimes can explain a substantial fraction of the movements in the time-varying parameter.
Caporale, Tony, "The Impact of Monetary Regime Changes: Some Exchange Rate Evidence" (1998). Economics and Finance Faculty Publications. 33.