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Exchange Rate Behavior with Negative Interest Rates: Some Early Negative Observations

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  • Rose, Andrew
  • hameed, allaudeen

Abstract

This paper examines exchange rate behavior during the recent period with negative nominal interest rates. We use a daily panel of data of 61 currencies from Jan 2010 through May 2016; during this time five economies (Denmark, EMU, Japan, Sweden, and Switzerland) experienced negative nominal interest rates. We examine both effective exchange rates and bilateral rates, the latter typically measured against the Swiss franc since Switzerland has had the longest period of negative nominal rates. We examine exchange rate volatility, exchange rate changes, deviations from uncovered interest parity, and profits from the carry trade. We find that negative interest rates seem to have little effect on observable exchange rate behavior.

Suggested Citation

  • Rose, Andrew & hameed, allaudeen, 2016. "Exchange Rate Behavior with Negative Interest Rates: Some Early Negative Observations," CEPR Discussion Papers 11498, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11498
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    Citations

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    Cited by:

    1. Thornton, John & di Tommaso, Caterina, 2018. "Unconventional monetary policy and the ‘currency wars’," Finance Research Letters, Elsevier, vol. 26(C), pages 250-254.
    2. Cynthia Balloch & Yann Koby & Mauricio Ulate, 2022. "Making Sense of Negative Nominal Interest Rates," Working Paper Series 2022-12, Federal Reserve Bank of San Francisco.
    3. Stefan Angrick & Naoko Nemoto, 2017. "Central banking below zero: the implementation of negative interest rates in Europe and Japan," Asia Europe Journal, Springer, vol. 15(4), pages 417-443, December.
    4. Thornton, John & Vasilakis, Chrysovalantis, 2019. "Negative policy interest rates and exchange rate behavior: Further results," Finance Research Letters, Elsevier, vol. 29(C), pages 61-67.
    5. repec:bla:pacecr:v:23:y:2018:i:1:p:8-26 is not listed on IDEAS
    6. Angrick, Stefan & Nemoto, Naoko, 2017. "Central Banking below Zero: The Implementation of Negative Interest Rate Policies in Europe and Japan," ADBI Working Papers 740, Asian Development Bank Institute.

    More about this item

    Keywords

    Volatility; Deviation; Uncovered; Interest; Parity; Carry; Trade; Daily; Data; Nominal;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

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