A CASE-STUDY OF THE IMPACT OF MONETARY-POLICY ON EXCHANGE-RATES

The impact of monetary policy on the level and variability of exchange rates has been debated in the literature since the emergence of flexi ble exchange rates. In this paper, we examine empirically the impact o f the October 1979 change in monetary policy on the level and volatili ty of the U.S. exchange rate. The evidence suggests that the change co ntributed significantly to a decline in the exchange rate from 1979 th rough 1982, and also to an increase in the volatility of the exchange rate. Several hypotheses are advanced to explain these results.