Monetary Policy's Rising FX Impact in the Era of Ultra-Low Rates

55 Pages Posted: 29 Apr 2017

See all articles by Massimo Ferrari

Massimo Ferrari

Università Cattolica del Sacro Cuore (UCSC)

Jonathan Kearns

Bank for International Settlements (BIS) - Monetary and Economic Department

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 3 versions of this paper

Date Written: April 7, 2017

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 the level of interest rates. A greater adjustment burden falls onto the exchange rate, as rates are increasingly constrained by the effective lower bound.

Monetary Policy's Rising FX Impact in the Era of Ultra-Low Rates: Supplementary Internet Appendix

Keywords: Rates, Unconventional Monetary Policy, Forward Guidance, Event Study, High Frequency Data

JEL Classification: E52, E58, F31

Suggested Citation

Ferrari, Massimo and Kearns, Jonathan and Schrimpf, Andreas, Monetary Policy's Rising FX Impact in the Era of Ultra-Low Rates (April 7, 2017). BIS Working Paper No. 626, Available at SSRN: https://ssrn.com/abstract=2951473

Massimo Ferrari

Università Cattolica del Sacro Cuore (UCSC) ( email )

1 Largo A. Gemelli
Milano (Milan), MI Milano 20123
Italy

Jonathan Kearns (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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