Do central banks respond to exchange rate movements? A Markov-switching structural investigation of commodity exporters and importers

We analyse whether central banks in small open commodity exporting and importing countries respond to exchange rate movements, taking into consideration that there may be structural changes parameters volatility. Using a Markov Switching Rational Expectations framework, we estimate the model for Australia, Canada, New Zealand, Norway, Sweden UK. find size of policy responses, volatility shocks, have not stayed constant over estimation sample. Furthermore, monetary has responded strongly many exporters, most notablyNorway. This had stabilizing effect on rate. In particular, although terms trade are highly volatile among about same across all importers exporters recent period.