Timeline for Quantitative easing and interest rate parity
Current License: CC BY-SA 4.0
8 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Jun 18, 2020 at 16:59 | comment | added | Henry | That is the theory if uncovered interest rate parity applies, but it often may not. | |
| Jun 18, 2020 at 15:23 | comment | added | Ajax | So in the short run the currency might weaken because people want to chases higher yields and so they will buy USD, but the interest rate arbitrage will disappear gradually through the passage of time, right? | |
| Jun 18, 2020 at 14:49 | comment | added | Henry | If you are chasing yield, then you may move your savings from a now low-interest paying country to a higher-interest paying country. This can cause exchange rate movements (and the change in the two money supplies could even be the opposite of what you suggest). | |
| Jun 18, 2020 at 14:26 | comment | added | Ajax | What are the other reasons for the weakening - if not increased money supply? Is buying govt. bonds causing "arbitrary reduction" in the interest rate? | |
| Jun 18, 2020 at 12:31 | answer | added | Brian Romanchuk | timeline score: 1 | |
| Jun 18, 2020 at 12:27 | comment | added | Henry | For a non-US country, an arbitrary reduction in interest rates will usually immediately weaken its exchange rate against the dollar (not just for money supply reasons). If uncovered interest rate parity applies (carry trade might suggest the opposite) then it implicitly suggests that in future the exchange rate may then slowly strengthen; to the extent this is recognised and thought implausible on fundamentals, the size of the initial fall may be larger with the predicted strengthening being due to a currency perceived as now being undervalued | |
| Jun 18, 2020 at 9:34 | review | First posts | |||
| Jun 21, 2020 at 7:15 | |||||
| Jun 18, 2020 at 9:33 | history | asked | Ajax | CC BY-SA 4.0 |