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Exchange rate behaviour with negative interest rates: Some early negative observations
Author(s) -
Hameed Allaudeen,
Rose Andrew K.
Publication year - 2018
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12250
Subject(s) - economics , interest rate parity , international fisher effect , interest rate , exchange rate , monetary economics , volatility (finance) , econometrics , nominal interest rate , real interest rate
This paper examines exchange rate behaviour during the recent period with negative nominal interest rates. We use a daily panel of data of 61 currencies from January 2010 to May 2016; during this time five economies (Denmark, EMU, Japan, Sweden and Switzerland) experienced negative nominal interest rates. We examine both effective exchange rates and bilateral rates, the latter typically measured against the Swiss franc because Switzerland has had the longest period of negative nominal rates. We examine exchange rate volatility, exchange rate changes, deviations from uncovered interest parity, and profits from the carry trade. We find that negative interest rates seem to have little effect on observable exchange rate behaviour.