Monetary Shocks at High-Frequency and Their Changing FX Transmission Around the Globe

67 Pages Posted: 1 Sep 2016

See all articles by Massimo Ferrari

Massimo Ferrari

Catholic University of Milan, Students

Jonathan Kearns

Bank for International Settlements (BIS) - Monetary and Economic Department

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department; Centre for Economic Policy Research (CEPR); University of Tuebingen

Date Written: August 31, 2016

Abstract

We show that the impact of monetary policy on exchange rates has been growing significantly in recent years. Our results are established by a high-frequency event study of how key fixed income instruments - Overnight-Index Swaps (OIS) and Bonds - respond jointly with exchange rates to news about monetary policy from seven major central banks. News affecting short-term maturity bonds tend to have the strongest impact, highlighting the relevance of communication regarding the path of future monetary policy for exchange rate movements. Overall, our findings suggest that the external channel of monetary transmission has been alive and well, even though many central banks have hit the effective lower bound in recent years.

Keywords: Exchange Rates, Unconventional Monetary Policy, Forward Guidance, Event Study, High Frequency Data

JEL Classification: E52, E58, F31

Suggested Citation

Ferrari, Massimo and Kearns, Jonathan and Schrimpf, Andreas, Monetary Shocks at High-Frequency and Their Changing FX Transmission Around the Globe (August 31, 2016). Available at SSRN: https://ssrn.com/abstract=2833106 or http://dx.doi.org/10.2139/ssrn.2833106

Massimo Ferrari

Catholic University of Milan, Students ( email )

Largo Gemelli 1
Milan, Milano 20123
Italy

Jonathan Kearns

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Andreas Schrimpf (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Tuebingen ( email )

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

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