US Monetary Policy and the Stability of Currency Pegs

Ingmar Rövekamp

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: I study the pricing of American Depositary Receipts around FOMC meetings to identify the impact of US monetary policy on managed exchange rates. ADR investors assess the domestic central bank's reluctance to maintain a currency peg regime if the costs of mimicking policy rate increases in the US are high, i.e., the current state of the domestic economy is poor. In line with currency crises models of interest rate defence, I find that positive US monetary surprises increase the breakdown probability of pegs with low real GDP growth, high fiscal deficits, high sovereign risk and a weak domestic banking sector.

Keywords: American Depositary Receipts; Currency Crises; Exchange Rates; FOMC Meetings; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203525

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