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The Impact of US Monetary Policy on Managed Exchange Rates

50 Pages Posted: 16 Jul 2018 Last revised: 24 May 2019

See all articles by Ingmar Roevekamp

Ingmar Roevekamp

Dresden University of Technology - Faculty of Economics and Business Management

Date Written: May 22, 2019

Abstract

I study the impact of US monetary policy on managed exchange rates by analyzing the pricing of American Depositary Receipts (ADRs) around FOMC meetings. The significant negative impact of US monetary surprises on abnormal ADR returns for currencies that are managed reflects changes in these currencies’ fundamental values due to US monetary policy shocks. In line with currency crises models of interest rate defence like Lahiri & Végh (2007), I find that positive US monetary surprises increase the breakdown probability of currency pegs of countries characterized by low real GDP growth, high fiscal deficits and a weak domestic banking sector.

Keywords: American Depositary Receipts, Currency Crises, Exchange Rates, FOMC Meetings, Monetary Policy

JEL Classification: E52, F31, G01, G12, G15

Suggested Citation

Roevekamp, Ingmar, The Impact of US Monetary Policy on Managed Exchange Rates (May 22, 2019). Available at SSRN: https://ssrn.com/abstract=3212637 or http://dx.doi.org/10.2139/ssrn.3212637

Ingmar Roevekamp (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

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