The Effects of Monetary Policies on Exchange Rates: A Multinational Panel Study (2000–2023)

Abstract

This study investigates the impact of monetary policy tools—interest rates, reserve requirements, and money supply—on exchange rates across five major economies: the United States, European Union, China, Japan, and Canada from 2000 to 2023. The analysis incorporates control variables such as GDP growth and inflation and utilizes various econometric models, from naïve regressions to advanced fixed effects specifications. The results show that interest rates and reserve requirements significantly influence exchange rate movements, while the role of money supply is more moderate. Special attention is given to the zero lower bound (ZLB) era using shadow rates. These findings align with Inoue and Rossi (2019), who highlight the role of expectations in monetary transmission during both conventional and unconventional periods. This study contributes to the literature by offering multinational evidence and providing insights into how central banks can manage exchange rate dynamics under evolving economic conditions