Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273722 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 10/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
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.
Subjects: 
Zero Lower Bound
Exchange Rate
Local Projections
State-dependent Effects
Unconventional Monetary Policy
Demand Shocks
JEL: 
F31
E31
E37
C54
ISBN: 
978-3-95729-941-3
Document Type: 
Working Paper

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