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

DOI: https://doi.org/10.31410/EMAN.S.P.2020.11

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

Abstract:

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.

Keywords:

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

REFERENCES

Acharya, V. V., i S. Steffen (2015). “The Greatest Carry Trade Ever? Understanding Eurozone
Bank Risks”. Journal of Financial Economics, 115(2), 215- 236.
Acharya, V. V., D. Pierret, S. Steffen, (2018). “Lender of Last Resort versus Buyer of Last Resort.
Evidence from the European Sovereign Debt Crisis”. Discussion Paper 18-035, Swiss
Finance Institute.
Albagli, E., Ceballos, L., Claro, S., i D. Romero (2019). “Channels of US monetary policy spillovers
to international bond markets”. Journal of Financial Economics (forthcoming)
Binding, G. and Dibiasi, A., 2017. “Exchange rate uncertainty and firm investment plans evidence
from Swiss survey data”. Journal of Macroeconomics 51, 1–27.
Chen, M. J., Griffoli, M. T. M., R. Sahay, (2014). “Spillovers from United States monetary policy
on emerging markets: different this time?”. International Monetary Fund Working Paper
14-240.
Chernozhukov, V., H. Hong (2003): “An MCMC Approach to Classical Estimation”. Journal of
Econometrics, 115(2), 293-346.
Clarida, R., J. Gali (1994). “Sources of real exchange-rate fluctuations: How important are nominal
shocks?”, in: Carnegie-Rochester conference series on public policy (Vol. 41, pp.
1-56). North-Holland.
Darby, J. Hughes Hallett, A. Ireland, J. and Piscatelli, L. 1999. “The impact of exchange rate
uncertainty on the level of investment”. Economic Journal 109, 55-67.
Drechsler, I., T. Drechsel, D. Marques-Ibanez, and P. Schnabl (2016): “Who Borrows from the
Lender of Last Resort?” The Journal of Finance, 71(5), 1933-1974.
Escanciano, J. C., C. Velasco (2010). “Specification Tests of Parametric Dynamic Conditional
Quantiles”. Journal of Econometrics, 159(1), 209-221.
Eser, F., and B. Schwaab (2016): “Evaluating the Impact of Unconventional Monetary Policy
Measures: Empirical evidence from the ECB’s Securities Markets Programme”. Journal
of Financial Economics, 119(1), 147-167.

Falagiarda, M., and S. Reitz (2015): “Announcements of ECB Unconventional Programs: Implications
for the Sovereign Spreads of Stressed Euro Area Countries”. Journal of International
Money and Finance, 53, 276-295.
Falagiarda, M., P. McQuade, M. Tirpak. (2015). “Spillovers from the ECB’s Non-standard Monetary
Policies on Non-euro area EU Countries: Evidence from an Event Study Analysis”.
ECB Working Paper Series 1869. Available at:
(https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1869.en.pdf)
Feldkircher, M., Gruber, T., F. Huber (2017). “Spreading the word or reducing the term spread?
Assessing spillovers from euro area monetary policy”. Working Paper 248, Wien University
(https://epub.wu.ac.at/5554/1/wp248.pdf)
Gambacorta, L., B. Hofmann, and G. Peersman (2014): “The Effectiveness of Unconventional
Monetary Policy at the Zero Lower Bound: A Cross-country Analysis”. Journal of Money,
Credit and Banking, 46(4), 615-642.
Gande, A., D. C. Parsley (2005): “News Spillovers in the Sovereign Debt Market”. Journal of
Financial Economics, 75(3), 691-734.
Garcia-de Andoain, C., F. Heider, M. Hoerova, S. Manganelli (2016). “Lending-of-last-resort is
as Lending-of-last-resort Does: Central Bank Liquidity Provision and Interbank Market
Functioning in the Euro Area”. Journal of Financial Intermediation, 28, 32-47.
Gertler, M., P. Karadi (2015). “Monetary Policy Surprises, Credit Costs, and Economic Activity”.
American Economic Journal: Macroeconomics, 7(1), 44-76.
Goldberg, L.S. 1993. “Exchange rates and investment in United States industry”. Review of
Economics and Statistics 75, 575-589.
Husted, L., Rogers, J. and Sun, B., 2019. “Monetary policy uncertainty”. Journal of Monetary
Economics forthcoming
Hanson, S. G., J. C. Stein (2015). “Monetary Policy and Long-term Real Rates”. Journal of Financial
Economics, 115(3), 429-448.
Jorda, O. (2005): “Estimation and Inference of Impulse Responses Local Projections”. American
Economic Review, 95(1), 161-182.
Krishnamurthy, A., and A. Vissing Jorgensen (2011): “The Effects of Quantitative Easing on
Interest Rates: Channels and Implications for Policy.” Brookings Papers on Economic
Activity, 42, 215-287.
Krishnamurthy, A., S. Nagel, and A. Vissing-Jorgensen (2017): “ECB Policies Involving Government
Bond Purchases: Impact and Channels”. Review of Finance, 22(1), 1-44.
Kuttner, K. N. (2001). “Monetary Policy Surprises and Interest Rates: Evidence from the Fed
funds Futures Market”. Journal of Monetary Economics, 47(3), 523-544.
Mody, A., and M. Nedeljkovic. 2019. “Central Bank Policies and Financial Markets: Lessons
from the Euro Crisis”. CESifo Working Papers 7400, Munich”. (https://sites.google.com/
site/mnedelj/research)
Rey, H. 2013. “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence.”
In: Federal Reserve Bank of Kansas City Jackson Hole Economic Policy
Symposium proceedings, 285–333.
Roberts, G. O., J. S. Rosenthal (2009). “Examples of Adaptive MCMC”. Journal of Computational
and Graphical Statistics, 18(2), 349-367.
Svensson, L. E. (2010): “Monetary Policy and Financial Markets at the Effective Lower Bound.”
Journal of Money, Credit and Banking, 42, 229-242.
White, H., T.-H. Kim, and S. Manganelli. 2015. “VAR for VaR: Measuring Tail Dependence
Using Multivariate Regression Quantiles.” Journal of Econometrics 187(1), 169-188.
Wright, J. H. (2012): “What Does Monetary Policy Do to Long-term Interest Rates at the Zero
Lower Bound?”. Economic Journal, 122(564), 447-46.

Download full paper


Share this

Association of Economists and Managers of the Balkans – UdEkoM Balkan
179 Ustanicka St, 11000 Belgrade, Serbia

https://www.udekom.org.rs/home

Udekom Balkans is a dynamic non-governmental and non-profit organization, established in 2014 with a mission to foster the growth of scientific knowledge within the Balkan region and beyond. Our primary objectives include advancing the fields of management and economics, as well as providing educational resources to our members and the wider public.

Who We Are: Our members include esteemed university professors from various scientific disciplines, postgraduate students, and experts from ministries, public administrations, private and public enterprises, multinational corporations, associations, and similar organizations.

Building Bridges Together: Over the course of nine years since our establishment, the Association of Economists and Managers of the Balkans has established impactful partnerships with more than 1,000 diverse institutions across the Balkan region and worldwide.

EMAN conference publications are licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.