The Alignment of Monetary Policy in Foreign Countries with the Federal Reserve Bank’s Monetary Policy: Evidence from Fixed and Floating Exchange Rate Regimes

Abstract The study participates in adding a new term to the monetary policy literature which is the alignment of monetary policies between foreign countries and the Federal Reserve Bank’s policy. This study aims to examine the effect of the of the monetary policy alignment in foreign countries with the Federal Reserve Bank’s monetary policy variable on gross domestic product and consumer price index in two groups of countries. Using the fixed effect model, results differed between countries that follow fixed exchange rates and others that follow floating exchange rate regimes. The study reveals that the alignment of domestic monetary policy in countries that follow a floating exchange rate regime is not symmetric with the Federal Reserve Bank’s monetary policy, while the model for countries with a fixed exchange rate regime is not reliable.