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Monetary policy's rising FX impact in the era of ultra-low rates

Massimo Ferrari, Jonathan Kearns and Andreas Schrimpf

No 11918, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that the FX impact of monetary policy has been growing significantly. We use a high-frequency event study of the joint response of fixed income instruments and exchange rates to monetary policy news from seven major central banks spanning 2004-2015. News affecting short maturity bonds have the strongest impact, highlighting the relevance of communication regarding the path of future policy. The FX impact of monetary policy is state-dependent and is stronger the lower is the level of interest rates. A greater adjustment burden falls onto the exchange rate, as rates are increasingly constrained by the effective lower bound.

Keywords: event study; Exchange Rates; forward guidance; High Frequency Data; Unconventional Monetary Policy (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017-03
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