Abstract
This paper reinvestigates the effects of US monetary policy shocks on exchange rates by using the structural VAR model with sign restrictions imposed on impulse responses following Kim et al. (2017) who documented that a delayed overshooting puzzle was not observed in the post-Volcker era. The main results are as follows. First, a huge uncertainty in the result of the nominal exchange rate response, which is the main variable of interest in Dornbusch’s overshooting theory, can be observed although Kim et al. (2017) investigated mostly the real exchange rate response. Second, the delayed overshooting puzzle for both nominal and real exchange rates is found for the model that includes non-borrowed reserves divided by a lag of total reserves, instead of current total reserves used by Kim et al. (2017), to be consistent with monetary policy operating procedure.
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