Domestic and Foreign Announcements on Unconventional Monetary Policy and Exchange Rates

Public Policy Brief No. 13-7
by Federico J. Díez and Ignacio Presno

This brief studies the effects that announcements about unconventional monetary policies (large-scale asset purchases, refinancing operations, and forward guidance) have on nominal exchange rates. To this end, the authors use high-frequency intra-daily data and look at the variations in government future yields and in nominal exchange rates over a narrow window around the time of the announcements. They find that expansionary monetary policy shocks embedded in announcements made by the Federal Reserve depreciate the U.S. dollar. In contrast, the authors also find that similar unexpected expansionary announcements by foreign central banks result in an appreciation of the U.S. dollar.

JEL Classifications: E58, F31

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