Milan Nedeljkovic – FEFA, Bulevar Zorana Đinđića 44, Belgrade, Serbia & CESifo Potschinger Strasse 5, Munich, Germany
Nikola Vasiljevic – University of Zurich, Plattenstrasse 14, Zurich, Switzerland


4th International Scientific Conference – EMAN 2020 – Economics and Management: How to Cope With Disrupted Times, Online/Virtual, September 3, 2020, SELECTED PAPERS published by: Association of Economists and Managers of the Balkans, Belgrade, Serbia; ISBN 978-86-80194-31-8, ISSN 2683-4510


We examine how emerging market (EM) foreign exchange (FX) markets respond to innovations
in the monetary policy in advanced economies over the crisis period. We focus on the case of the
European Central Bank (ECB) which pursued a combination of different policies during the Eurozone
sovereign crisis. In a new econometric framework, we identify responses of foreign exchange markets
in three EM economies (Hungary, Poland and Turkey) to different types of ECB policies. We find weak
effect of the ECB’s Euro liquidity provisions on the EM foreign exchange markets. In contrast, while the
ECB’s foreign exchange liquidity provisions as well as government bond interventions and policy rate
changes did not impact the FX levels, they led to higher uncertainty in the FX markets. The results are
indicative of the additional, uncertainty channels through which monetary policy shocks in advanced
economies may affect the business cycle fluctuations in the EM economies.


Exchange rates, Monetary policy, Uncertainty, Conditional quantiles, MCMC.


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