[13] One mechanism behind this could be that the exchange rate is determined more by market participants active at the short end of the yield curve, such as traders involved in carry trade strategies, than by market participants active at the long end of the yield curve, such as global bond asset managers.
[14] When replacing the bilateral euro-US dollar exchange rate with the nominal effective exchange rate of the euro, a 10 basis point decline in the rate expectations and term premium policy shock depreciate the euro effective exchange rate by about 1% and 0.3%, respectively, on average over the sample.