This paper evaluates the impact of unconventional monetary policies on the exchange rate using a standard model of an open economy with theoretical interest rates (‘shadow’ rates), not subject to the effective lower bound (ELB) and incorporating the effects on the entire yield curve of all the measures taken by the central bank. The impact of the measures introduced in the euro area and the United States between 2000 and 2018 on the bilateral euro/dollar exchange rate, both nominal and real, is quantified.
The adoption of unconventional measures has significantly influenced developments in the euro/dollar exchange rate. Between 2010 and 2014, the exchange rate has been more affected by Federal Reserve interventions, appreciating by up to 6 per cent, before depreciating as a result of the measures introduced by the ECB. From 2015 to date the ECB’s unconventional policies have led to a cumulative depreciation of the nominal euro/dollar exchange rate of around 8 per cent.
