Exchange rates, central bank news and the zero lower bound*

Domenico Lombardi, Pierre Siklos and Samantha St. Amand

Applied Economics Letters, 2017, vol. 24, issue 4, 269-272

Abstract: The zero lower bound (ZLB) may restrict the responsiveness of exchange rates to news. A proxy for central bank communication is added as a determinant in a model of exchange rate movements. Two reserve currencies, the British pound and euro, and two currencies of small open economies, the Canadian dollar and Swedish krona, are examined. Reserve currencies are more vulnerable to the ZLB constraint, while the currencies of small open economies become more responsive to foreign central bank announcements. Certain unconventional monetary policy announcements were found to significantly impact exchange rates at the ZLB.

Date: 2017
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DOI: 10.1080/13504851.2016.1184217

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