Monetary policy’s rising FX impact in the era of ultra-low rates

Massimo Ferrari Minesso, Jonathan Kearns and Andreas Schrimpf

Journal of Banking & Finance, 2021, vol. 129, issue C

Abstract: We show that the impact of monetary policy on exchange rates has been growing significantly in recent years. Our results are established by a high-frequency event study of how key fixed income instruments with different maturities respond jointly with exchange rates to monetary policy news from six major central banks. Across countries, news affecting short-term maturity bonds tend to have the strongest impact, highlighting the relevance of communication regarding the path of future monetary policy for exchange rate movements even when policy rates are near their lower bound. We find that the FX impact of monetary policy is state-dependent and is stronger the lower is the level of interest rates, in line with a greater effect through currency risk premia.

Keywords: Exchange rates; Unconventional monetary policy; Event study; High frequency data (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Monetary policy's rising FX impact in the era of ultra-low rates (2017)
Working Paper: Monetary policy's rising FX impact in the era of ultra-low rates (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:129:y:2021:i:c:s037842662100100x

DOI: 10.1016/j.jbankfin.2021.106142

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