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Does a big bazooka matter? Quantitative easing policies and exchange rates

Luca Dedola, Georgios Georgiadis, Johannes Gräb () and Arnaud Mehl ()

Research Bulletin, 2020, vol. 76

Abstract: What does quantitative easing (QE) really mean for the exchange rate? This article explains how the relevant effects can be estimated using a statistical methodology derived from theory. The results suggest that QE has large and persistent effects on the USD/EUR exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance, reflecting the “signalling channel” of monetary policy, also affect how the USD/EUR exchange rate responds to QE. JEL Classification: F41

Keywords: QE dynamic effects; Signalling channels of QE; UIP and CIP deviations (search for similar items in EconPapers)
Date: 2020-10
Note: 80922
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Journal Article: Does a big bazooka matter? Quantitative easing policies and exchange rates (2021) Downloads
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