Arbeitspapier
On the empirical relevance of the exchange rate as a shock absorber at the zero lower bound
We estimate the effects of a negative asymmetric demand shock on the real exchange rate for the euro area vis-à-vis the United States, Canada, and Japan by state-dependent sign-restricted local projection methods. We find a real depreciation when interest rates are not at the ZLB, but also when they are. The exchange rate can accomodate considerable variations in output, confirming its shock-absorbing capacity before and during the ZLB episode. The stabilizing role of the exchange rate is accompanied by a significant expansion of the ECB's balance sheet at the ZLB, while it remained unaffected in the pre-ZLB period. Our empirical results can be reconciled with an open economy New Keynesian model extended with unconventional monetary policy measures when interest rates are at the ZLB.
- ISBN
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978-3-95729-941-3
- Language
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Englisch
- Bibliographic citation
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Series: Deutsche Bundesbank Discussion Paper ; No. 10/2023
- Classification
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Wirtschaft
Foreign Exchange
Price Level; Inflation; Deflation
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Quantitative Policy Modeling
- Subject
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Zero Lower Bound
Exchange Rate
Local Projections
State-dependent Effects
Unconventional Monetary Policy
Demand Shocks
- Event
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Geistige Schöpfung
- (who)
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Finck, David
Hoffmann, Mathias
Hürtgen, Patrick
- Event
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Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
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Frankfurt a. M.
- (when)
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2023
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Finck, David
- Hoffmann, Mathias
- Hürtgen, Patrick
- Deutsche Bundesbank
Time of origin
- 2023
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The hockey stick Phillips curve and the zero lower bound
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Impulse response analysis at the zero lower bound