Shifting Exchange Rate Determinants amid the Pandemic

Abstract

This paper investigates how exchange rate determinants and channels of its movement changed amid the Covid-19 crisis, compared to during the Global financial Crisis and a normal period. During the pandemic, synchronicity of fiscal and monetary policy among major economies and trade effects associated with economic activity differentials between home and overseas appear to offset some of exchange rate movements driven by yield differentials and safe-haven effects. In the post-Covid period, structural changes such as digitalization of services and climate change could re-focus trade factors as exchange rate determinants, in addition to investment and financial factors.