The impact of ECB’s monetary policy on Euro’s exchange rate

• Autor(a) principal: Campino, José Pedro Meira
• Data de Publicação: 2015
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/11521
• topic: European Central Bank; EUR/USD exchange rate; Non-conventional monetary policy; União Europeia. BCE Banco Central Europeu; Taxa de câmbio EUR/USD; Zona euro -- Euro zone; Política monetária não convencional

The study of foreign exchange is relevant thanks to the impact it may have at different levels. Moreover, the recent economic programs influence exchange rates in a free floating international monetary arrangement, which has caused several minor international incidents. Thus, the study topic of this work is the indirect influence of the European Central Bank (ECB) on EUR/USD exchange rate. This study seems to be pertinent due to the scarce literature available on the subject, its complexity and its current relevance. We have focused on central banks and their policies, mainly the Federal Reserve System (Fed) and the ECB, and particularly on the ECB’s monetary policy. We have chosen the mixed methods approach, in order to make both a qualitative and quantitative analysis. The study begins with an approach to central banking and moves to contextualizing the ECB’s scope of action within the Eurozone, as well as analyzing its monetary policy, that, through the transmission mechanism, affects money supply and credit. Afterwards, we focus on exchange rates and closely examine the EUR/USD exchange rate in different periods, particularly during the non-conventional monetary policy period. Lastly, we use statistics to support the argument that non-conventional monetary policy influences exchange rates. We conclude that the ECB’s non-conventional monetary policy puts downward pressure on the EUR/USD exchange rate and the contrary happens with Fed’s policy. Several aspects, including behavioral ones, may affect exchange rates particularly in a turbulent economic/financial situation, but very high correlations proving the main arguments of the study, lead us to believe in the primary relation of monetary base and exchange rate.