Samantha St. Amand

Exchange rates, central bank news and the zero lower bound*

ABSTRACT The zero lower bound (ZLB) may restrict the responsiveness of exchange rates to news. A proxy for central bank communication is added as a determinant in a model of exchange rate movements. Two reserve currencies, the British pound and euro, and two currencies of small open economies, the Canadian dollar and Swedish krona, are examined. Reserve currencies are more vulnerable to the ZLB constraint, while the currencies of small open economies become more responsive to foreign central bank announcements. Certain unconventional monetary policy announcements were found to significantly impact exchange rates at the ZLB.

A SURVEY OF THE INTERNATIONAL EVIDENCE AND LESSONS LEARNED ABOUT UNCONVENTIONAL MONETARY POLICIES: IS A ‘NEW NORMAL’ IN OUR FUTURE?: LESSONS FROM UNCONVENTIONAL POLICIES

This study examines the effectiveness of unconventional monetary policies (UMP). It considers whether these policies have been successful and where their effects remain uncertain. We survey both the domestic financial market and macro‐economic effects of UMP in the economies where these policies were introduced and their international spillover effects. The paper considers the impact of a wide range of UMP rather than the effects of specific policy instruments. We also provide a retrospective on the important case of Japan beginning in the late1990s and ask whether the Eurozones experience with UMP is substantively different given its structure of policymaking. Finally, we ask: if the ‘old normal’ is not in our future, should the ‘new normal’ in monetary policy routinely include what we now refer to as UMP? We conclude that UMP can prevent economic collapse but are not designed to promote stronger long‐term economic growth. Apart from new communication strategies, the use of UMP under normal circumstances does not appear to be a sound monetary policy strategy. Failure to learn this lesson might also enable future policy makers to ask or expect too much from their central banks.

Government Bond Yields at the Effective Lower Bound: International Evidence

Empirical evidence on the potential impact of central bank policies on government bond yields at the effective lower bound (ELB) is presented for nine economies. We quantify the content of central bank communications and consider international policy spillovers. At the ELB, yields at the medium-to-longer end of the yield curve remain responsive to news for a few years after the ELB is reached. Yields become more sensitive to the content central bank communication at the ELB. Our results provides further evidence that central bank communication is an important element of monetary policy making when the interest rate tool loses efficacy.

GOVERNMENT BOND YIELDS AT THE EFFECTIVE LOWER BOUND: INTERNATIONAL EVIDENCE

Empirical evidence on the potential impact of central bank policies on government bond yields at the effective lower bound (ELB) is presented for nine economies. We quantify the content of central bank communications and consider international policy spillovers. At the ELB, yields at the medium-to-longer end of the yield curve remain responsive to news for a few years after the ELB is reached. Yields become more sensitive to the content central bank communication at the ELB. Our results provides further evidence that central bank communication is an important element of monetary policy making when the interest rate tool loses efficacy.