Central Bank of Brazil paper addresses exchange rate puzzle in emerging market economies


Exchange rates do not react to domestic monetary policy in the way that conventional theory would suggest, according to a Central Bank of Brazil paper published on Thursday.

Emanuel Kohlscheen, the paper's author, investigates the effect of monetary policy shocks on the exchange rates of Brazil, Mexico and Chile. The author notes that while the literature suggests an unexpected monetary contraction leads to an immediate appreciation of the currency, there is a lack of evidence of such a

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