and k. west ( 2010 ), “ global interest rates, currency returns, and the real value of the dollar ”, american economic review, 100, pp. 562567. 6 a second explanation could be that exogenous monetary policy shocks may have less impact on long - term interest rates ( see e. g. evans, c. l. and d. a. marshall ( 1998 ), “ monetary policy and the term structure of nominal interest rates : evidence and theory ”, carnegie rochester series on public policy, 49, 1998, pp. 53 – 111 ). 7 for more details on estimates of us term premia, see e. g. adrian, t., r. crump and e. moench ( 2013 ), “ pricing the term structure with linear regressions ”, journal of financial economics, 110, pp. 110 - 138. for the euro area term premia, the breakdown is based on an affine term structure model fitted to the euro area ois curve using the method described in joslin, s., k. singleton and h. zhu ( 2011 ), “ a new perspective on gaussian dynamic term structure models ”, review of financial studies, 24, pp. 926 - 970. 8 the evidence presented here seems at odds with the predictions made in gali, j. ( 2017 ), “ forward guidance 10 / 11 bis central bankers'speeches and the exchange rate ”, mimeo. 9 this happened despite us medium - term inflation expectations as well as crude oil prices moving mostly sideward during this period, with a stable world economic outlook as depicted by the imf. 10 many market commentaries also considered that the speech by ecb president mario draghi in august 2014 in jackson hole provided signals that the ecb was considering purchases of sovereign bonds in response to a destabilisation of medium - term inflation expectations. see draghi, m. ( 2014 ), “ unemployment in the euro area ”, speech at the annual central bank symposium in jackson hole, 22 august. 11 for more details about the methodology, see diebold, f. x. and k. yilmaz ( 2012 ), “ better to give than to receive : predictive directional measurement of volatility spillovers ”, international journal of forecasting, 28, pp. 57 - 66. 12 see sims, c. ( 2003 ), “ implications of rational inattention ”, journal of monetary economics, 50

. in this sense, the implications are very similar to those described by xavier gabaix and matteo maggiori in their 2015 quarterly journal of economics article, which states that the risk - bearing capacity of financial intermediaries provides a role for capital flows to affect the exchange rate. 16 the difference is only that if asset purchases are understood by investors to be part of the reaction function of central banks, then the exchange rate can be expected to adjust before capital flows take place. this is certainly what we have seen in the euro area. this also means that we should treat more carefully findings in the event - study literature that assign most of the observed exchange rate change around central bank asset purchase announcements to the signalling channel. 17 given that intermediaries are forward - looking but constrained by their balance sheets, policy - induced exchange rate changes can also be expected to reflect expectations of future cross - border capital flows and their associated impact on the future supply of and demand for currency. in this sense, the debate also shares some similarities with a related strand of the literature, namely the transmission channels of sterilised foreign exchange interventions. the view that such interventions are effective mainly by signalling future policy intentions is frequently challenged by empirical evidence suggesting that portfolio rebalancing may have economically relevant effects. 18 of course, this does not mean that understanding the potential spillovers of central bank asset purchase programmes is enough to explain exchange rate movements. changes in relative term premia are far more difficult to interpret than changes in the expected path of future short - term interest rates. the latter can be clearly associated with changes in monetary policy expectations. 8 / 11 bis central bankers'speeches changes in term premia, by contrast, often reflect a combination of shocks, including monetary policy shocks as well as shocks to demand, risk aversion and other variables, which will drive term premia in the same or in opposite directions. the most recent disconnect between the euro and us dollar exchange rate and the expected future short - term interest rate differential is a case in point. on the left - hand side of slide 7 you can see that a significant gap between the two series re - emerged in the spring of this year, and continues to persist. it is tempting to link recent developments once more to portfolio rebalancing considerations. after all, the federal reserve is now actively reducing its balance sheet, while the ecb last week decided to extend its asset purchase programme by nine months, or more, if needed,