Exchange Rates and Monetary Policy Uncertainty

Philippe Mueller, Alireza Tahbaz-Salehi, Andrea Vedolin

Research output: Contribution to journalArticlepeer-review

57 Scopus citations


We document that a trading strategy that is short the U.S. dollar and long other currencies exhibits significantly larger excess returns on days with scheduled Federal Open Market Committee (FOMC) announcements. We show that these excess returns (i) are higher for currencies with higher interest rate differentials vis-à-vis the United States, (ii) increase with uncertainty about monetary policy, and (iii) increase further when the Federal Reserve adopts a policy of monetary easing. We interpret these excess returns as compensation for monetary policy uncertainty within a parsimonious model of constrained financiers who intermediate global demand for currencies.

Original languageEnglish (US)
Pages (from-to)1213-1252
Number of pages40
JournalJournal of Finance
Issue number3
StatePublished - Jun 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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