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Asset Purchase Programs and the Exchange Rate
APP announcements and Dollar Indices
Abstract: In this paper, I evaluate the impact of COVID-era asset purchase programs (APPs) on the dollar exchange rate in both emerging markets (EMs) and ex-US advanced economies (AEs). In an event study analysis that includes APP announcements for 23 EMs and seven AEs, I find that APPs appreciated the exchange rate in EMs after controlling for the policy actions of the Federal Reserve (Fed), including the Fed swap lines, the policy actions of other AEs, and the simultaneous policy actions of the implementing country itself. I interpret the results through the lens of long-run uncovered interest rate parity deviations driven by sovereign credit risk, showing that asset purchase surprises lower the promised yield but do not necessarily decrease the underlying risk-free rate in EMs. These results suggest that APPs might help EMs stabilize exchange rates during episodes of distress without necessarily intervening in the foreign exchange market.
Long-run Uncovered Interest Parity in Emerging Markets
with Alessandro Rebucci and Giorgio Valente.
Abstract: Long-run uncovered interest rate parity (LRUIP) tends to hold for G10 currencies (Chinn & Meredith, 2004; Lustig, Stathopoulos, & Verdelhan, 2019). Focusing on the ten most freely floating emerging market currencies (EM10), we show that UIP does not hold even in the long run for emerging markets (EMs). However, when UIP regressions are augmented with measures of credit risk, LRUIP cannot be rejected statistically for these currencies.
Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper Series
Exchange Rate Responses to Geopolitical Risk and Trade Policy Uncertainty: Cross-Country Evidence"
with Nino Kodua and Jionglin (Andy) Zheng.
Abstract: This paper examines how exchange rates respond to geopolitical risk (GPR) and trade policy uncertainty (TPU) shocks using a panel local projection framework. We analyze monthly bilateral exchange rates of advanced economy and most freely floating emerging market currencies against the U.S. dollar from 1985 to 2025. We document two main findings. First, large global GPR shocks, defined as those above the 90th percentile, exhibit threshold effects, causing advanced economy currencies to depreciate against the U.S. dollar more strongly and more significantly than those of emerging markets. In contrast, country-specific GPR shocks trigger pronounced depreciation in emerging market currencies, while responses in advanced economies are delayed and less statistically significant. Second, TPU shocks above the same threshold lead to significant depreciation against the U.S. dollar across both country groups, with larger effects on emerging markets. Our results highlight the non-linearity of GPR and TPU shocks and their differential impacts across country groups.
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