Does a big bazooka matter? Quantitative easing policies and exchange rates

• 成果类型: Article
• 署名作者: Dedola, Luca; Georgiadis, Georgios; Grab, Johannes; Mehl, Arnaud
• 署名单位: European Central Bank; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2020.03.002
• 发表日期: 2021
• 关键词: QE dynamics effects; Signalling channel of QE; UIP and CIP deviations

摘要

We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks' balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate: The typical ECB or Federal Reserve expansionary QE announcement in our sample resulted in an increase in the relative balance sheet of about 20% and, in turn, in a persistent exchange rate depreciation of around 7%. Regarding transmission channels, we find that a relative QE shock that expands the ECB's balance sheet relative to that of the Federal Reserve depreciates the euro against the US dollar by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in residual deviations from interest parity. Changes in the expectations about the future monetary policy stance, reflecting the signalling channel of QE, also contribute to the exchange rate response to QE shocks. (C) 2020 Elsevier B.V. All rights reserved.