On quantitative easing and high frequency exchange rate dynamics

Dimitris Kenourgios, Stephanos Papadamou and Dimitrios Dimitriou ()

Research in International Business and Finance, 2015, vol. 34, issue C, 110-125

Abstract: This paper examines the effects of quantitative easing (QE) announcements by the European Central Bank, the Bank of Japan and the Bank of England on exchange rate dynamics. Using intraday data of three major exchange rates (EUR/USD, GBP/USD, JPY/USD), we apply a univariate APARCH(1,1) model and include QE dummies to empirically investigate how exchange rates are affected in mean and volatility. The empirical results indicate: (i) a direct negative impact on GBP and JPY and no effect of their volatility around the QE announcements of the corresponding central banks, (ii) a delayed devaluation of EUR and an increase of its volatility before and after the ECB's announcements. Furthermore, the behavior of dynamic conditional correlation among currencies is investigated across the QE announcements. We find a decline in the conditional correlation between EUR and GBP around the announcements by the BoE. These findings highlight the differences on the credibility and effectiveness of the monetary easing strategies and provide important implications from the investors’ and policy makers’ perspective.

Keywords: Quantitative easing; Exchange rates; Intraday; Volatility; Dynamic conditional correlation (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:34:y:2015:i:c:p:110-125

DOI: 10.1016/j.ribaf.2015.01.003

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