Abstract
This study aims to evaluate the impact of major and minor changes in the Euro Zone and US interest rates on the EUR/USD exchange rate between 1 January 1999 and 31 December 2020. Therefore, twelve events are analyzed in this period, five related to changes in the US interest rate, six related to changes in the European interest rate, and finally, a single event in which both interest rates undergo an equal variation on the same date. The event study methodology was used, which, through the calculation of abnormal returns, makes it possible to evaluate whether there was a repercussion of the events on the value of the EUR/USD exchange rate. This methodology is used in several studies related to capital markets. The obtained results prove that there are abnormal returns with statistical significance on the event days, and, on the days that follow, changes in the interest rates have an impact on the EUR/USD exchange rate; however, there is no clear direction of the asset after the events occur.
Funder
Portuguese national funds through FCT–Fundação para a Ciência e a Tecnologia, I.P.
Subject
Economics, Econometrics and Finance (miscellaneous),Development
Reference43 articles.
1. Alquist, Ron, and Chinn, Menzie (2002). Productivity and the Euro/Dollar Exchange Rate Puzzle. NBER Working Papper(8824), Econpapers.
2. Do market fundamentals determine the dollar-euro exchange rate?;Journal of Policy Modeling,2012
3. A scapegoat model of exchange-rate fluctuations;American Economic Review,2004
4. The dollar-euro exchange rate and monetary fundamentals;Empirical Economics,2017
5. Bloomberg (2021, June 07). ECB Unexpectedly Cuts Interest Rates as Outlook Darkens. Available online: https://www.bloomberg.com/news/articles/2014-09-04/ecb-unexpectedly-cuts-interest-rates-as-outlook-darkens#xj4y7vzkg.