Exchange Rates and Monetary Policy
Changes in the federal funds target rate affect economic activity through different channels or transmission mechanisms. Most people understand the interest rate transmission mechanism: Easier monetary policy encourages interest-sensitive spending by lowering short-term interest rates. Exchange rates offer another policy conduit.
Suggested citation: "Exchange Rates and Monetary Policy," Federal Reserve Bank of Cleveland, Economic Trends, no. 01-10, pp. 09, 10.01.2001.