Unconventional Monetary Policy and International Risk Premia
By J. Rogers, Chiara Scotti, Jonathan H. Wright. Journal of Money, Credit and Banking, 2016
163 citations recorded by the source corpus.
We assess the relationship between monetary policy, foreign exchange risk premia and term premia at the zero lower bound. We estimate a structural VAR including U.S. and foreign interest rates and exchange rates, and identify monetary policy shocks through a method that uses these surprises as the crucial "external instrument" that achieves identification without having to use implausible short-run restrictions. This allows us to measure effects of policy shocks on expectations, and hence risk premia. U.S. monetary policy easing shocks lower domestic and foreign bond risk premia, lead to dollar depreciation and lower foreign exchange risk premia. We present some evidence that U.S. monetary policy easing surprises at the ZLB shift options-implied skewness in the direction of dollar depreciation and also reduce the demand for the liquidity of short-term U.S. Treasuries. Both of these channels should lower foreign exchange risk premia.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/aeb60e174ec11efe1e15b884f2f005709abd5c11
Citations in the corpus
- Measuring the effects of federal reserve forward guidance and asset purchases on financial markets (2020, unknown): “23 This is essentially the same approach taken in recent papers by Rogers et al. (2018) and Gilchrist et al. (2018) , although the latter authors do not distinguish between changes in the federal funds rate and forward guidance.”
- Exchange Rates and Monetary Policy Uncertainty (2017, unknown): “For example, Eichenbaum and Evans (1995), Faust and Rogers (2003), Scholl and Uhlig (2008), Rogers, Scotti, and Wright (2016), and Stavrakeva and Tang (2015) among others, study the effect of monetary policy shocks extracted from high-frequency data on exchange rates in a vector autoregression…”
- Monetary policy uncertainty (2017, unknown): “[50] Rogers, John, Chiara Scotti, and Jonathan Wright, 2016.”