Gravity Among Central Bank Balance Sheets: Monetary Policy Spill-Over on FX Volatility

Gábor Dávid Kiss and Mercédesz Mészáros
Additional contact information
Mercédesz Mészáros: Faculty of Economics and Business Administration, University of Szeged, Hungary

Econometric Research in Finance, 2020, vol. 5, issue 1, 33-57

Abstract: Following the subprime crisis, most of the European central banks implemented several unconventional monetary instruments. As a result of the late quantitative easing, there was a shift from stimulating lending to the immediate stimulation of the securities market in the monetary policy of the European Central Bank (ECB) and of the smaller central banks, too. These securities purchase programs, first and second-market transactions, and asset purchases have led to an increase in the stock of securities held by the central banks, whose spill-over effects have not been fully explored yet. The aim of our research is to identify the spill-over effects of the central banks' unconventional instruments and quantitative easing on currency volatility while considering the relative size of the issuing central bank and the situation of small open economies. By running an adapted version of gravity models, we analyzed a sample of six European central banks and the ECB. Based on our results, the high volatility levels of European currencies around the eurozone have come from their relative smallness and unconventional monetary policy, and considerations about safe havens have a reducing power on FX volatility.

Keywords: Interest Rate Parity; Unconventional Monetary Policy; Panel Regression (search for similar items in EconPapers)
JEL-codes: C33 E43 E52 E58 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.erfin.org/journal/index.php/erfin/article/view/78 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sgh:erfinj:v:5:y:2020:i:1:p:33-57

DOI: 10.2478/erfin-2020-0003

Access Statistics for this article

Econometric Research in Finance is currently edited by Dobromił Serwa and Piotr Wdowiński

More articles in Econometric Research in Finance from SGH Warsaw School of Economics, Collegium of Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Dobromił Serwa ().