Economics, Econometrics and Finance
6 years ago

Monetary policy easing leads to currency depreciation, reshaping global exchange rates.

Journal of International Economics
The effects of conventional and unconventional monetary policy on exchange rates
Atsushi Inoue, Barbara Rossi

Paper Summary

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The effects of monetary policy on exchange rates were studied in the US during both conventional and unconventional periods. The researchers found that when monetary policy is eased, the country's currency tends to depreciate. However, the impact of monetary policy shocks varied over time and depended on how they influenced expectations. The study also supported the idea that changes in expected real interest rates play a crucial role in transmitting monetary policy shocks.