On Quantitative Easing and High Frequency Exchange Rate Dynamics

Research in International Business and Finance, Vol. 34 (2015), pp. 110-125

Posted: 8 Feb 2015

See all articles by Dimitris Kenourgios

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Stephanos Papadamou

University of Thessaly - Department of Economics

Dimitrios I. Dimitriou

University of Ioannina - Department of Economics; National and Kapodistrian University of Athens

Date Written: February 6, 2015

Abstract

This paper examines the effects of quantitative easing (QE) announcements by the European Central Bank, the Bank of Japan and the Bank of England on exchange rate dynamics. Using intraday data of three major exchange rates (EUR/USD, GBP/USD, JPY/USD),we apply a univariate APARCH(1,1) model and include QE dummies to empirically investigate how exchange rates are affected in mean and volatility. The empirical results indicate: (i) a direct negative impact on GBP and JPY and no effect of their volatility around the QE announcements of the corresponding central banks, (ii) a delayed devaluation of EUR and an increase of its volatility before and after the ECB’s announcements. Furthermore, the behavior of dynamic conditional correlation among currencies is investigated across the QE announcements. We find a decline in the conditional correlation between EUR and GBP around the announcements by the BoE. These findings highlight the differences on the credibility and effectiveness of the monetary easing strategies and provide important implications from the investors’ and policy makers’ perspective.

Keywords: Quantitative easing, Exchange rates, Intraday Volatility, Dynamic conditional correlation

JEL Classification: E52, E58, F31, G15

Suggested Citation

Kenourgios, Dimitris and Papadamou, Stephanos and Dimitriou, Dimitrios I. and Dimitriou, Dimitrios I., On Quantitative Easing and High Frequency Exchange Rate Dynamics (February 6, 2015). Research in International Business and Finance, Vol. 34 (2015), pp. 110-125, Available at SSRN: https://ssrn.com/abstract=2561468

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

Stephanos Papadamou

University of Thessaly - Department of Economics ( email )

Volos 38221
Greece

Dimitrios I. Dimitriou (Contact Author)

University of Ioannina - Department of Economics ( email )

45110 Ioannina
Greece

National and Kapodistrian University of Athens ( email )

Department of Economics
Athens
Greece

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