The Effects of Quantitative Easing Policies on Exchange Rates: Lessons from American Experience

Since 2008 some industrialised countries, including the United States and the United Kingdom, have been facing liquidity trap problems and have implemented Quantitative Easing (QE) measures in an attempt to improve financing conditions in their overall economy. Although Quantitative Easing policies primarily act upon long-term interest rates and asset prices, they also have secondary effects on exchange rates. In a “currency war” context, some countries might be tempted to use QE as a protectionist weapon in a bid to achieve exchange rate depreciation. After identifying which QE transmission channels affect exchange rates, the paper proposes an empirical analysis of stylized facts and econometric tests on the United States.