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The impact of US monetary policy on managed exchange rates and currency peg regimes

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  • Roevekamp, Ingmar

Abstract

I study the impact of US monetary policy on managed exchange rates and currency peg regimes by analyzing the pricing of American Depositary Receipts (ADRs) around FOMC meetings. I identify a significant negative impact of US monetary surprises on abnormal ADR returns for currencies that are managed, which reflects changes in these currencies’ fundamental values due to US monetary policy shocks. In line with currency crises models of interest rate defence like Lahiri and Végh (2007), positive US monetary surprises increase the breakdown probability of currency pegs of countries characterized by low real GDP growth, high fiscal deficits and a weak domestic banking sector.

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  • Roevekamp, Ingmar, 2021. "The impact of US monetary policy on managed exchange rates and currency peg regimes," Journal of International Money and Finance, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:jimfin:v:110:y:2021:i:c:s0261560620302229
    DOI: 10.1016/j.jimonfin.2020.102266
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    2. Cañon, Carlos & Gerba, Eddie & Pambira, Alberto & Stoja, Evarist, 2024. "An unconventional FX tail risk story," Journal of International Money and Finance, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    American depositary receipts; Currency crises; Exchange rates; FOMC meetings; Monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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