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This paper studies the impact of major ECB monetary policy announcements on the portfolio allocation of euro area fund investors, using daily data between 2012 and mid-2016, a period that includes a variety of unconventional measures. We distinguish between active portfolio reallocation, driven by redemptions or injections of investors, and passive portfolio rebalancing, triggered by valuation effects related to changes in asset prices and exchange rates. We find that, for this class of fund investors, policy announcements work mainly through valuation effects (the signalling channel), rather than via active reallocation (the portfolio balance channel). Notably, since the autumn of 2014, monetary policy shocks triggered large asset price and exchange rate effects and prompted a passive shift of euro area investors into riskier assets, in particular European and Emerging Market equity funds and out of bond funds.

We investigate the impact of movements in the real exchange rate on economic growth based on five-year average data for a panel of over 150 countries in the post Bretton Woods period. Unlike previous literature, we use external instruments to deal with possible reverse causality from growth to the real exchange rate. Our country-specific instruments are (i) global capital flows interacted with individual countries’ financial openness and (ii) the growth rate of official reserves. We find that a real appreciation (depreciation) reduces (raises) significantly annual real GDP growth, more than in previous estimates in the literature. However, our results confirm this effect only for developing countries and for pegs.

We study what makes government bonds a safe asset. Building on a sample of monthly changes in government bond yields in 40 advanced and emerging countries, we analyse the sensitivity of yields to country specific fundamentals interacted with changes in global risk (VIX). We find that inertia (whether the bond behaved as a safe asset in the past) and good institutions foster a safe asset status, while the size of the debt market is also significant, reflecting the special role of the US. Within advanced and emerging markets, drivers are heterogeneous, with external sustainability in particular being relevant for the latter countries after the global financial crisis. Finally, the safe asset status does not appear to depend on whether the change in global risk is driven by financial shocks rather than by US monetary policy.

In this paper we search for global safe-haven assets by analysing the impact of crisis episodes and risk shocks on the behaviour of foreign investors and selected asset prices and yields. We regress de-trended net purchases by foreign investors of debt instruments issued in safe and liquid financial markets on estimated global risk-aversion shocks and crisis episodes identified by both quantitative and qualitative means. On the price side, we also look at changes in long-term government bond yields and the appreciation of the effective exchange rate conditional on risk shocks. We find that US short-term debt – in particular government debt – is the best, though still imperfect, example of a global safe-haven asset. In the majority of cases we find that foreign investors head for the exit.

Do oil shocks matter for exchange rates? This paper addresses this question based on data on real and nominal exchange rates as well as an exchange market pressure index for 44 advanced and emerging countries. We identify three structural shocks (oil supply, global demand, and oil specific demand) which raise the real oil price and analyse their effect on individual exchange rates. Contrary to the predictions of the theoretical literature, we find no evidence that exchange rates of oil exporters systematically appreciate against those of oil importers after shocks raising the real oil price. However, oil exporters experience significant appreciation pressures following an oil demand shock, which they tend to counter by accumulating foreign exchange reserves. Results for general commodity exporters are similar, showing minor differences compared with oil exporters. JEL Classification: F31, Q43

There is already a substantial literature documenting the fact that low yield currencies typically appreciate during times of global financial stress and behave as safe havens. The main objective of this paper is to find out what the fundamentals of safe haven currencies are. We analyse a large panel of 52 currencies in advanced and emerging countries over almost 25 years of data. We find that only a few factors are robustly associated to a safe haven status, most notably the net foreign asset position, an indicator of external vulnerability, and to a lesser extent the absolute size of the stock market, an indicator of market size and development. The interest rate spread against the US is significant only for advanced countries, whose currencies are subject to carry trade. More generally, we find that it is hard to predict what currencies would do when global risk aversion is high, as estimates are imprecise and often not stable or robust. This suggests caution in over-interpreting exchange rate movements during financial crises. JEL Classification: E44, F31, G15

Using count-data techniques, this article studies the determinants of currency choice in the issuance of foreign-currency-denominated bonds. In particular, we investigate whether bond issuers choose their issuance currency in order to exploit the borrowing-cost savings associated with deviations from uncovered and covered interest parity. Our findings show that the choice of issuance currency is sensitive to deviations from uncovered interest parity but insensitive, in general, to deviations from covered interest parity. Furthermore, the influence of deviations from uncovered interest parity is stronger for financial issuers than for nonfinancial issuers. In as much as the issuance of foreign-currency-denominated bonds affects the relative international standing of world currencies, one implication of these findings is that monetary policy, through its influence on nominal interest rates, has a greater impact on the internationalization of currencies than has been previously accounted for.

This paper studies the impact of external factors on daily exchange rates and short-term interest rates in the Czech Republic, Hungary and Poland during the period August 1997 – May 2001. I find that neither exchange rates nor interest rates are influenced by short-term German interest rates. Nevertheless, I show that shocks to emerging-market risk premia had a significant impact on exchange rates in all three Central and Eastern European count-ries and on interest rates in the Czech Republic. In addition, studying the second moment of the variables, I demonstrate that Czech and Polish exchange rates were affected by ‘vo- latility contagion’ coming from emerging markets. I find also some partial support for the ‘volatility contagion’ hypothesis on Czech interest rates. These findings shed some doubts on the alleged theoretical ability of a floating exchange rate – such as in the Czech Repub-lic – to absorb external shocks and insulate a country's domestic monetary policy comple-tely. However, the spill-over effect on Czech interest rates might be explained by the ‘ma-naged’ nature of the exchange rate regime, thereby re-establishing some credibility of the theory.