Zero interest rates reshape global markets, impacting exchange rates significantly.
Central banks in the US and Japan are studying how their monetary policies affect their own and each other's financial markets. Due to low interest rates, they use a shadow short rate to measure policy impact. Results show that when interest rates are near zero, the way policy changes affect markets is different. For example, exchange rates had little response to unconventional policy in Japan at first, but have been significantly impacted since 2006.