Abstract
The principal objective of this study is to examine the different policy implications of balance sheet expansion and the impact on currency stability on a monthly basis. Balance sheets can evolve due to conventional and unconventional monetary practices, generally through foreign exchange reserve policies or by qualitative and quantitative easing. Monetary policy instruments are measured by different balance sheet ratios. Currency stability is captured by two methods, one focuses on monthly number of extreme currency fluctuations through the contravention of normal distribution at tails, and another utilises conditional volatility. The sample contains seven European central banks between 2006 and 2014: one manages a key currency, four has a safe haven currency while two of them are considered as an emerging currency. The key currency issuer central bank presented a significant interaction between its balance sheet ratios and currency stability only, where monetary expansion calmed its currency market.
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