Monetary policy transmission through the exchange rate factor structure
Abstract
We show that US monetary policy is transmitted internationally through the factor structure of exchange rates. Following an easing of monetary policy, investment funds sell safe and buy risky currencies. Global US banks, similarly, tilt their distribution of foreign loan origination toward currencies with greater systematic currency risk. The effects of monetary policy on currency flows and loans persist for several months and feed into the leverage and real investment decisions of firms and, in particular, those that operate using a high-risk currency. We conclude that the risk factor exposure of currencies is a significant channel through which we can understand the international transmission of US monetary policy.
Fields of Study & Subjects
Global Financial Crisis and Policies
Monetary Policy and Economic Impact
Economic theories and models
Publication details
- Journal / source
- Journal of Financial Economics
- Publisher
- Elsevier BV
- Volume
- 182
- Pages
- 104305–104305
- Publication date
- 16 May 2026
- Language
- EN