The Sensitivity of the U.S. Dollar Exchange Rate to Changes in Monetary Policy Expectations

Curcuru, Stephanie E.

doi:10.17016/2573-2129.36

Cited by 7 publications

(7 citation statements)

References 7 publications

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“…Our results of two-way spillovers are in line with the results inGűrkaynak and Wright (2011) andCurcuru (2017) who also find evidence of monetary policy announcements abroad spilling over to U.S yields based on daily changes in overnight index swap contracts.…”

supporting

confidence: 91%

Measuring Monetary Policy Spillovers between U.S. and German Bond Yields

Curcuru

Pooter

Eckerd

2018

internationalfinance

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In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. yields following ECB announcements, which is nearly identical to the spillover from U.S. yields to German Bund yields following FOMC announcements. This result contrasts with the conventional wisdom that FOMC announcements spill over to other countries but that there is not much effect in the other direction. We also find that spillover estimates are slightly higher in the post-crisis period, but that there is little difference in the spillover impact of conventional versus unconventional monetary policy. Our results based on futures prices differ noticeably from those using daily prices, which suggests that spillover estimates based on cash market data can be misleading.

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supporting

confidence: 91%

Measuring Monetary Policy Spillovers between U.S. and German Bond Yields

Curcuru

Pooter

Eckerd

2018

internationalfinance

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“…Another possibility the authors present is that reduced liquidity and intermediation ability of dealers may lead investors to shy away from inventory risk. However, Curcuru (2017) shows that the sensitivity of the dollar to interest rates does not rise smoothly over time, but fluctuates widely. This suggests that the heightened sensitivity of the dollar in the post-GFC period may reflect particular macroeconomic circumstances rather than persistent structural changes.…”

Section: Discussionmentioning

confidence: 99%

“…Finally, some event studies circumvent these problems by comparing the effects of all monetary policy announcements in the pre-and post-GFC periods. For example, Glick and Leduc (2015), Ferrari, Kearns, and Schrimpf (2016), and Curcuru (2017) show that the responsiveness of the exchange rate to U.S. monetary policy announcements rose after the GFC. On the assumption that pre-GFC policy actions were mainly conventional while post-GFC actions were mainly unconventional, this could imply greater spillovers of unconventional policies such as quantitative easing.…”

Section: Introductionmentioning

confidence: 99%

International Spillovers of Monetary Policy: Conventional Policy vs. Quantitative Easing

Curcuru

Kamin

et al. 2018

internationalfinance

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This paper evaluates the popular view that quantitative easing exerts greater international spillovers than conventional monetary policies. We employ a novel approach to compare the international spillovers of conventional and balance sheet policies undertaken by the Federal Reserve. In principle, conventional monetary policy affects bond yields and financial conditions by affecting the expected path of short rates, while balance-sheet policy is believed act through the term premium. To distinguish the effects of these two types of policies we use a term structure model to decompose longer-term bond yields into expected short-term interest rates and term premiums. We then examine the relative effects of changes in these two components of yields on changes in exchange rates and foreign bond yields. We find that the dollar is more sensitive to expected short-term interest rates than to term premia; moreover, the rise in the sensitivity of the dollar to monetary policy announcements since the GFC owes more to an increased sensitivity of the dollar to expected interest rates than to term premiums. We also find that changes in short rates and term premiums have similar effects on foreign yields. All told, our findings contradict the popular view that quantitative easing exerts greater international spillovers than conventional monetary policies.

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“…As shown in Figure 5, exchange rate volatility (as measured by the average absolute percent change in quarterly exchange rates) has 23 Possible explanations are that unconventional policies work more through the term premium (and therefore long-term securities) and/or are interpreted as a longer term commitment than conventional policy. See Brainard (2017) for a summary of arguments, and see Neely (2015), Glick and Leduc (2015), Curcuru (2017), Ferrari et al (2017) and Hatzius et al (2017) for analysis if the effects of unconventional monetary policy are different than conventional policies.…”

Section: A Exchange Rate Volatility: Pre-and Post-crisismentioning

confidence: 99%

International Evidence on Shock-Dependent Exchange Rate Pass-Through

2020

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We analyse the economic conditions (the "shocks") behind currency movements and show how that analysis can help address a range of questions, focussing on exchange rate passthrough to prices. We build on a methodology previously developed for the United Kingdom and adapt this framework so that it can be applied to a diverse sample of countries using widely available data. The paper provides three examples of how this enriched methodology can be used to provide insights on pass-through and other questions. First, it shows that exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher pass-through than those caused by demand shocks in a cross-section of countries, confirming earlier results for the UK. Second, it shows that the underlying shocks (especially monetary policy shocks) are particularly important for understanding the time-series dimension of pass-through, while the standard structural variables highlighted in previous literature are most important for the cross-section dimension. Finally, the paper explores how the methodology can be used to shed light on the effects of monetary policy and the debate on "currency wars": it shows that the role of monetary policy shocks in driving the exchange rate has increased moderately since the global financial crisis in advanced economies.

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The Sensitivity of the U.S. Dollar Exchange Rate to Changes in Monetary Policy Expectations

Abstract: This note summarizes recent work in the International Finance Division of the Federal Reserve Board on the relationship between movements in exchange rates and monetary policy expectations.

Cited by 7 publications

References 7 publications

Measuring Monetary Policy Spillovers between U.S. and German Bond Yields

Measuring Monetary Policy Spillovers between U.S. and German Bond Yields

International Spillovers of Monetary Policy: Conventional Policy vs. Quantitative Easing

International Evidence on Shock-Dependent Exchange Rate Pass-Through

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