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Revisiting the exchange rate dynamics at the US zero lower bound

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경제연구소 (Hanyang Economic Research Institute)|2022.11|Seoul Journal of Economics|제35권 제4호|pp. 425-444|DOI 10.22904/sje.2022.35.4.004

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참고문헌

키워드

COVID-19 pandemicExchange rate overshootingShadow federal funds rateZero lower boundTimevarying VARUncovered interest rate parity
주제분류경제학

초록

This study revisits the dynamics of dollar/euro exchange rate in response to the US monetary policy shock at the zero lower bound (ZLB) including the COVID-19 pandemic. The key findings are as follows. First, the exchange rate behavior indicates Dornbusch (1976)’s overshooting hypothesis at the states classified as beginning and ending of the ZLB. Second, the revived ZLB induced by the COVID-19 pandemic has a larger impact on the exchange rate than that induced by the global financial crisis. Third, the responses of the exchange rates demonstrate the uncovered interest rate parity and the overshooting.

Abstract

This study revisits the dynamics of dollar/euro exchange rate in response to the US monetary policy shock at the zero lower bound (ZLB) including the COVID-19 pandemic. The key findings are as follows. First, the exchange rate behavior indicates Dornbusch (1976)’s overshooting hypothesis at the states classified as beginning and ending of the ZLB. Second, the revived ZLB induced by the COVID-19 pandemic has a larger impact on the exchange rate than that induced by the global financial crisis. Third, the responses of the exchange rates demonstrate the uncovered interest rate parity and the overshooting.

참고문헌 (32)

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