TY  - JOUR
AU  - Inoue, Atsushi
AU  - Rossi, Barbara
TI  - The Effects of Conventional and Unconventional Monetary Policy on Exchange Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 25021
PY  - 2018
Y2  - September 2018
DO  - 10.3386/w25021
UR  - http://www.nber.org/papers/w25021
L1  - http://www.nber.org/papers/w25021.pdf
N1  - Author contact info:
Atsushi Inoue
Department of Economics
Vanderbilt University
Nashville, TN 37235
E-Mail: atsushi.inoue@vanderbilt.edu

Barbara Rossi
CREI
Universitat Pompeu Fabra 
Carrer Ramon Trias Fargas 25-27
08005 Barcelona, Spain 
Spain
E-Mail: barbara.rossi@upf.edu
M1  - published as Atsushi Inoue, Barbara Rossi. "The Effects of Conventional and Unconventional Monetary Policy on Exchange Rates," in Jordi Galí and Kenneth West, organizers, "NBER International Seminar on Macroeconomics 2018" Journal of International Economics (Elsevier), volume 118 (2019)

M3  - presented at "International Seminar on Macroeconomics", June 29-30, 2018
AB  - What are the effects of monetary policy on exchange rates? And have unconventional monetary policies changed the way monetary policy is transmitted to international financial markets? According to conventional wisdom, expansionary monetary policy shocks in a country lead to that country's currency depreciation. We revisit the conventional wisdom during both conventional and unconventional monetary policy periods in the US by using a novel identification procedure that defines monetary policy shocks as changes in the whole yield curve due to unanticipated monetary policy moves and allows monetary policy shocks to differ depending on how they affect agents' expectations about the future path of interest rates as well as their perceived effects on the riskiness/uncertainty in the economy. Our empirical results show that: (i) a monetary policy easing leads to a depreciation of the country's spot nominal exchange rate in both conventional and unconventional periods; (ii) however, there is substantial heterogeneity in monetary policy shocks over time and their effects depend on the way they affect agents' expectations; (iii) we find favorable evidence to Dornbusch's (1976) overshooting hypothesis.
ER  -