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Asset purchase programmes and the exchange rate

Author

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  • Sinem Yağmur Toraman

Abstract

In this paper, I evaluate the impact of COVID-era asset purchase programmes (APPs) on the dollar exchange rate in both emerging markets (EMs) and ex-US advanced economies (AEs). In an event study analysis that includes APP announcements for 23 EMs and seven AEs, I find that APPs appreciated the exchange rate in EMs after controlling for the policy actions of the Federal Reserve (Fed), including Fed swap lines, the policy actions of other AEs, and the simultaneous policy actions of the implementing country itself. I interpret the results through the lens of long-run uncovered interest rate parity deviations driven by sovereign credit risk, showing that asset purchase surprises lower the promised yield but do not necessarily decrease the underlying risk-free rate in EMs. These results suggest that APPs might help Ems stabilise exchange rates during episodes of distress without necessarily intervening in the foreign exchange market.

Suggested Citation

  • Sinem Yağmur Toraman, 2026. "Asset purchase programmes and the exchange rate," Working Papers 77, European Stability Mechanism, revised 24 Jun 2026.
    • Handle: RePEc:stm:wpaper:77
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    JEL classification:

    • 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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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