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On quantitative easing and high frequency exchange rate dynamics

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  • Kenourgios, Dimitris
  • Papadamou, Stephanos
  • Dimitriou, Dimitrios

Abstract

This paper examines the effects of quantitative easing (QE) announcements by the European Central Bank, the Bank of Japan and the Bank of England on exchange rate dynamics. Using intraday data of three major exchange rates (EUR/USD, GBP/USD, JPY/USD), we apply a univariate APARCH(1,1) model and include QE dummies to empirically investigate how exchange rates are affected in mean and volatility. The empirical results indicate: (i) a direct negative impact on GBP and JPY and no effect of their volatility around the QE announcements of the corresponding central banks, (ii) a delayed devaluation of EUR and an increase of its volatility before and after the ECB's announcements. Furthermore, the behavior of dynamic conditional correlation among currencies is investigated across the QE announcements. We find a decline in the conditional correlation between EUR and GBP around the announcements by the BoE. These findings highlight the differences on the credibility and effectiveness of the monetary easing strategies and provide important implications from the investors’ and policy makers’ perspective.

Suggested Citation

  • Kenourgios, Dimitris & Papadamou, Stephanos & Dimitriou, Dimitrios, 2015. "On quantitative easing and high frequency exchange rate dynamics," Research in International Business and Finance, Elsevier, vol. 34(C), pages 110-125.
  • Handle: RePEc:eee:riibaf:v:34:y:2015:i:c:p:110-125
    DOI: 10.1016/j.ribaf.2015.01.003
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    Cited by:

    1. Loaiza-Maya, Rubén Albeiro & Gómez-González, José Eduardo & Melo-Velandia, Luis Fernando, 2015. "Exchange rate contagion in Latin America," Research in International Business and Finance, Elsevier, vol. 34(C), pages 355-367.
    2. Kenourgios, Dimitris & Papadamou, Stephanos & Dimitriou, Dimitrios, 2015. "Intraday exchange rate volatility transmissions across QE announcements," Finance Research Letters, Elsevier, vol. 14(C), pages 128-134.
    3. repec:kap:iecepo:v:15:y:2018:i:2:d:10.1007_s10368-017-0401-7 is not listed on IDEAS
    4. Kryzanowski, Lawrence & Zhang, Jie & Zhong, Rui, 2017. "Cross-financial-market correlations and quantitative easing," Finance Research Letters, Elsevier, vol. 20(C), pages 13-21.
    5. Ben Omrane, Walid & Welch, Robert, 2016. "Tick test accuracy in foreign exchange ECN markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 135-152.

    More about this item

    Keywords

    Quantitative easing; Exchange rates; Intraday; Volatility; Dynamic conditional correlation;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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