COVID-19 and Exchange Rates: Spillover Effects of U.S. Monetary Policy
25 Pages Posted: 18 May 2020 Last revised: 14 Jun 2021
Date Written: June 13, 2021
This paper investigates the spillover effects of U.S. monetary policy on exchange rates of 11 emerging markets and 12 advanced economies during the pre-COVID-19 versus COVID-19 periods. The investigation is achieved by a structural vector autoregression model, where year-on-year changes in weekly measures of economic activity, exchange rates and policy rates are used. The empirical results suggest evidence for the spillover effects of U.S. monetary policy for several countries during the pre-COVID-19 period, whereas they have been effective only for certain countries during the COVID-19 period that can be explained by the disease outbreak channel. Important policy implications follow.
Keywords: COVID-19, Coronavirus, Exchange Rates, Monetary Policy, Reaction Function, Google Mobility, Spillover Effects
JEL Classification: E52, E58, F31, F42
Suggested Citation: Suggested Citation