The Dollar During the Great Recession: US Monetary Policy Signaling and the Flight to Safety

61 Pages Posted: 7 Oct 2019

See all articles by Vania Stavrakeva

Vania Stavrakeva

London Business School

Jenny Tang

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: October 2019

Abstract

Conventional wisdom holds that lowering a home country's interest rate relative to another's will depreciate the domestic currency. We document that US monetary policy easings actually had the opposite effect during the Great Recession. We attribute this effect to calendar-based forward guidance that signaled economic weakness which resulted in a flight-to-safety effect and lower expected inflation in the United States. Our results imply that accusations that the Federal Reserve engaged in a "competitive devaluation" over the Great Recession were unfounded.

JEL Classification: E52, F31, G01

Suggested Citation

Stavrakeva, Vania and Tang, Jenny, The Dollar During the Great Recession: US Monetary Policy Signaling and the Flight to Safety (October 2019). CEPR Discussion Paper No. DP14034, Available at SSRN: https://ssrn.com/abstract=3465746

Vania Stavrakeva (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Jenny Tang

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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