The COVID-19 pandemic haunting the transmission of the quantitative easing to the exchange rate

Donia Aloui

Finance Research Letters, 2021, vol. 43, issue C

Abstract: The sudden spread of the COVID-19 pandemic disturbed the entire macroeconomic system and overturned the expectations of financial market participants and decision-makers. Using a TVP-BVAR-SV model, I investigate the transmission of the quantitative easing (QE) to the exchange rate and the business credit in the Eurozone during the pre-and post-COVID-19 outbreak. I find that the responses of the exchange rate EUR/USD to monetary policy shocks vary over time. In particular, I show that the QE policy does not generate the expected effect on the exchange rate during the COVID-19 pandemic period. The results imply that the unforeseen COVID-19 crisis has disturbed and modified investors’ behavior.

Keywords: COVID-19; ECB; Quantitative easing; Exchange rate; Shadow rate; Business credits; TVP-BVAR-SV model; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: C11 E44 E52 G40 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321001069

DOI: 10.1016/j.frl.2021.102025

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