Investigating the impact of monetary policy on foreign exchange market in Europe during COVID-19 pandemic

Cosmin-Octavian Cepoi, Bogdan Dumitrescu, Georgiana-Camelia Georgescu (Crețan), Rodica Gherghina and Mihaela Iacob

Applied Economics Letters, 2023, vol. 30, issue 8, 1139-1144

Abstract: In this paper, we investigated how policy rate modifications – the main instrument used by central banks to provide liquidity during the current health crisis – influenced the evolution of the exchange rate, which is a key element within macro-stabilization policies. We documented that foreign exchange markets in European countries responded asymmetrically to monetary policy interventions devoted to the encouragement of spending and the stimulation of the economy. However, this only occurred during extreme events, which is a side-effect of the monetary policy on the foreign exchange market. These results contribute to the assessment of the space for manoeuvres by monetary policymakers regarding key policy rate modifications as a response to pandemic shocks.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:30:y:2023:i:8:p:1139-1144

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DOI: 10.1080/13504851.2022.2039360

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