Fischer, Stanley and Board of Governors of the Federal Reserve System (U.S.), 1935- "The Transmission of Exchange Rate Changes to Output and Inflation." Remarks at "Monetary Policy Implementation and Transmission in the Post-Crisis Period," a Conference Sponsored by the Board of Governors of the Federal Reserve System, Washington, D.C., November 12, 2015, https://fraser.stlouisfed.org/title/3778/item/521775, accessed on May 1, 2025.

Title: The Transmission of Exchange Rate Changes to Output and Inflation : Remarks at "Monetary Policy Implementation and Transmission in the Post-Crisis Period," a Conference Sponsored by the Board of Governors of the Federal Reserve System, Washington, D.C.

Date: November 12, 2015
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image-container-0 For release on delivery 6:00 p.m. EST November 12, 2015 The Transmission of Exchange Rate Changes to Output and Inflation Remarks by Stanley Fischer Vice Chairman Board of Governors of the Federal Reserve System at “Monetary Policy Implementation and Transmission in the Post-Crisis Period,” a conference sponsored by the Board of Governors of the Federal Reserve System Washington, D.C. November 12, 2015
image-container-1 Good evening. My discussion tonight will focus on a key transmission channel in an open economy--the exchange rate. 1 The exchange rate is a primary focus of central bankers in small open economies as well as a prime concern of the broader public in those economies--and, to a lesser extent, in even the largest of economies. When I was governor of the Bank of Israel prior to joining the Federal Reserve, my markets screen was continuously open at a chart of the exchange rate of the shekel against the dollar. For small open economies, the exchange rate may well matter as much for output and inflation as do interest rates. 2 Given that the U.S. economy is much less open than Israel’s, it is not surprising that fluctuations in the dollar typically receive somewhat less attention here in the United States. Indeed, much of the focus on dollar fluctuations in the recent research literature is on transmission to foreign economies, including through balance sheet channels, as in the Bank for International Settlements paper (Hofmann, Shim, and Shin, forthcoming) that will be presented tomorrow. Nevertheless, the exchange value of the dollar also plays a significant role in the U.S. economy, a role that has increased over time given growing global trade and financial linkages. My remarks will focus on the consequences of the dollar’s ascent since last summer for U.S. output and inflation--and thus for monetary policy. 1 The views expressed here are my own and not necessarily those of others at the Board, on the Federal Open Market Committee, or in the Federal Reserve System. I am grateful to Christopher Erceg, Joseph Gruber, and Deborah Lindner for their contributions to this speech and to William English and David Skidmore for comments. 2 At times, starting in the 1990s, several central banks--most prominently, the Bank of Canada--have used a monetary conditions index, generally a weighted average of changes in a short-term interest rate and a multilateral exchange rate from some baseline, as a policy indicator.
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Date: November 12, 2015
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