The Dollar Channel of Monetary Policy Transmission

Ralf R. Meisenzahl, Friederike Niepmann and Tim Schmidt-Eisenlohr

No 2025-046, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper documents a new dollar channel that transmits monetary policy across borders. Exploiting unique features of the syndicated loan market for identification, we show that changes in the euro-dollar exchange rate around ECB monetary policy announcements that are orthogonal to simultaneous changes in euro-area interest rates and stock prices affect U.S. leveraged loan spreads. Specifically, in response to dollar appreciation, investors require higher compensation for risk, and borrowing costs for U.S. firms increase. These findings imply a causal link between the U.S. dollar and investors’ risk appetite.

Keywords: Loan pricing; Monetary policy spillovers; Dollar; Institutional investors; Risk taking (search for similar items in EconPapers)
JEL-codes: F15 G15 G21 G23 (search for similar items in EconPapers)
Date: 2025-07-01
New Economics Papers: this item is included in nep-mon
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https://www.federalreserve.gov/econres/feds/files/2025046pap.pdf (application/pdf)

Related works:
Working Paper: The Dollar Channel of Monetary Policy Transmission (2025)
Working Paper: The Dollar Channel of Monetary Policy Transmission (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-46

DOI: 10.17016/FEDS.2025.046

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