The Dollar During the Great Recession: US Monetary Policy Signaling and The Flight To Safety

Vania Stavrakeva and Jenny Tang

No 14034, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Conventional wisdom holds that lowering a home country’s interest rate relative to another’s will depreciate the domestic currency. We document that US monetary policy easings actually had the opposite effect during the Great Recession. We attribute this effect to calendar-based forward guidance that signaled economic weakness which resulted in a flight-to-safety effect and lower expected inflation in the United States. Our results imply that accusations that the Federal Reserve engaged in a “competitive devaluation†over the Great Recession were unfounded.

JEL-codes: E52 F31 G01 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (13)

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