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Unconventional monetary policy and the dollar: conventional signs, unconventional magnitudes

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  • Reuven Glick
  • Sylvain Leduc

Abstract

We examine the effects of unconventional monetary policy surprises on the value of the dollar using high-frequency intraday data and contrast them with the effects of conventional policy tools. Identifying monetary policy surprises from changes in interest rate future prices in narrow windows around policy announcements, we find that monetary policy surprises since the Federal Reserve lowered its policy rate to the effective lower bound have had larger effects on the value of the dollar. In particular, we document that the impact on the dollar has been roughly three times that following conventional policy changes prior to the 2007-08 financial crisis.

Suggested Citation

  • Reuven Glick & Sylvain Leduc, 2015. "Unconventional monetary policy and the dollar: conventional signs, unconventional magnitudes," Working Paper Series 2015-18, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2015-18
    DOI: 10.24148/wp2015-18
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    References listed on IDEAS

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    1. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    2. Eric Ghysels & Julien Idier & Simone Manganelli & Olivier Vergote, 2017. "A High-Frequency assessment of the ECB Securities Markets Programme," Journal of the European Economic Association, European Economic Association, vol. 15(1), pages 218-243.
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    4. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    5. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    6. Stefania D'Amico & Mira Farka, 2011. "The Fed and the Stock Market: An Identification Based on Intraday Futures Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(1), pages 126-137, January.
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    Cited by:

    1. Silvia Miranda-Agrippino, 2015. "Unsurprising Shocks: Information, Premia, and the Monetary Transmission," Discussion Papers 1613, Centre for Macroeconomics (CFM), revised Apr 2016.
    2. Chang, Jui-Chuan Della & Chang, Kuang-Liang, 2018. "The asymmetric effects of U.S. large-scale asset purchases on the volatility of the Canadian dollar futures market," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 15-28.
    3. Inoue, Atsushi & Rossi, Barbara, 2019. "The effects of conventional and unconventional monetary policy on exchange rates," Journal of International Economics, Elsevier, vol. 118(C), pages 419-447.
    4. Jordi Galí, 2017. "Uncovered interest parity, forward guidance and the exchange rate," Economics Working Papers 1600, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2020.
    5. Bernhard, Severin & Ebner, Till, 2017. "Cross-border spillover effects of unconventional monetary policies on Swiss asset prices," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 109-127.
    6. Rüth, Sebastian K., 2020. "Shifts in monetary policy and exchange rate dynamics: Is Dornbusch's overshooting hypothesis intact, after all?," Journal of International Economics, Elsevier, vol. 126(C).
    7. Holtemöller, Oliver & Kriwoluzky, Alexander & Kwak, Boreum, 2020. "Exchange rates and the information channel of monetary policy," IWH Discussion Papers 17/2020, Halle Institute for Economic Research (IWH).
    8. Dedola, Luca & Georgiadis, Georgios & Gräb, Johannes & Mehl, Arnaud, 2020. "Does a big bazooka matter? Quantitative easing policies and exchange rates," Research Bulletin, European Central Bank, vol. 76.
    9. Siklos, Pierre L., 2018. "Boom-and-bust cycles in emerging markets: How important is the exchange rate?," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 172-187.
    10. Beckmann, Joscha & Czudaj, Robert, 2017. "Exchange rate expectations since the financial crisis: Performance evaluation and the role of monetary policy and safe haven," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 283-300.
    11. De Rezende, Rafael B. & Ristiniemi, Annukka, 2018. "A shadow rate without a lower bound constraint," Working Paper Series 355, Sveriges Riksbank (Central Bank of Sweden).
    12. Forti Grazzini, Caterina & Rieth, Malte, 2017. "Interest Rates and Exchange Rates in Normal and Crisis Times," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168281, Verein für Socialpolitik / German Economic Association.
    13. Gang Wang, 2019. "The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 7(1), pages 1-30, February.
    14. Jasper Hoek & Steven B. Kamin & Emre Yoldas, 2020. "When is Bad News Good News? U.S. Monetary Policy, Macroeconomic News, and Financial Conditions in Emerging Markets," International Finance Discussion Papers 1269, Board of Governors of the Federal Reserve System (U.S.).
    15. Smales, L.A. & Apergis, N., 2017. "Does more complex language in FOMC decisions impact financial markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 171-189.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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