Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

689     [ Page 1 of 34, No. 1 ]

Date

2017-04

Author

Francis Vitek

Affiliation

Money and Capital Markets Department, IMF

Title

Policy, Risk and Spillover Analysis in the World Economy: A Panel Dynamic Stochastic General Equilibrium Approach

Summary /
Abstract

This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies, to facilitate multilaterally consistent macrofinancial policy, risk and spillover analysis. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. These macrofinancial linkages encompass bank and capital market based financial intermediation, with financial accelerator mechanisms linked to the values of the housing and physical capital stocks. A variety of monetary policy analysis, fiscal policy analysis, macroprudential policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary, fiscal and macroprudential transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.

Keywords

Monetary policy analysis; Fiscal policy analysis; Macroprudential policy analysis; Spillover analysis; Forecasting; World economy; Bayesian econometrics

URL

http://www.imf.org/~/media/Files/Publications/WP/2017/wp1789.ashx



Record ID

688     [ Page 1 of 34, No. 2 ]

Date

2017-02

Author

Andersson, Fredrik N. G., and Jonung, Lars

Affiliation

Both of the Department of Economics, Lund University

Title

How Tolerant Should Inflation-Targeting Central Banks Be? Selecting the Proper Tolerance Band - Lessons from Sweden

Summary /
Abstract

Should an inflation-targeting central bank have an explicit tolerance band around its inflation target? This paper provides an answer derived from the Swedish experience. The Riksbank is exceptional in the sense that it first adopted and later abolished an explicit band and is currently considering bringing it back. We conclude that the band should be explicit for several reasons. Most important, an inflation-targeting central bank should be open and transparent to the public regarding its actual ability to control inflation. We discuss how a numerical measure of the proper width of the band can be constructed to foster communication and credibility.

Keywords

Inflation targeting; tolerance band; tolerance interval; monetary policy; the Riksbank; Sweden

URL

http://project.nek.lu.se/publications/workpap/papers/wp17_2.pdf



Record ID

687     [ Page 1 of 34, No. 3 ]

Date

2016-11

Author

Kishor, N. Kundan and Koenig, Evan F.

Affiliation

University of Wisconsin and Federal Reserve Bank of Dallas

Title

The roles of inflation expectations, core inflation, and slack in real-time inflation forecasting

Summary /
Abstract

Using state-space modeling, we extract information from surveys of long-term inflation expectations and multiple quarterly inflation series to undertake a real-time decomposition of quarterly headline PCE and GDP-deflator inflation rates into a common long-term trend, common cyclical component, and high-frequency noise components. We then explore alternative approaches to real-time forecasting of headline PCE inflation. We find that performance is enhanced if forecasting equations are estimated using inflation data that have been stripped of high-frequency noise. Performance can be further improved by including an unemployment-based measure of slack in the equations. The improvement is statistically significant relative to benchmark autoregressive models and also relative to professional forecasters at all but the shortest horizons. In contrast, introducing slack into models estimated using headline PCE inflation data or conventional core inflation data causes forecast performance to deteriorate. Finally, we demonstrate that forecasting models estimated using the Kishor-Koenig (2012) methodology-which mandates that each forecasting VAR be augmented with a flexible state-space model of data revisions-consistently outperform the corresponding conventionally estimated forecasting models.

Keywords

Inflation; real-time forecasting; unobserved component model; slack

URL

http://d.repec.org/n?u=RePEc:fip:feddwp:1613&r=cba



Record ID

686     [ Page 1 of 34, No. 4 ]

Date

2017-01

Author

International Monetary Fund

Title

Finland: Financial sector Assessment Program; Technical Note-Macroprudential Policy Framework

Summary /
Abstract

The macroprudential policy framework in Finland has experienced major changes recently and the mandate has become shared with the ECB. First, a domestic framework was formalized in 2014. The Board of the Financial Supervisory Authority (FIN-FSA) was designated as the authority to implement a set of macroprudential instruments in Finland, and a coordination mechanism among domestic authorities for macroprudential policy, including the Bank of Finland (BoF), was established. Second, with the start of the European Single Supervisory Mechanism (SSM) in 2014, the European Central Bank (ECB) was designated as a macroprudential authority for the euro area, with the European Systemic Risk Board (ESRB) continuing to play an advisory role for all European Union (EU) countries. As a result, macroprudential policy has become a shared responsibility among the national authorities, and the European Union and euro-area level authorities.

Keywords

Financial Sector Assessment Program;Macroprudential Policy;Housing;Housing prices;Financial sector;Banks;Credit expansion;Financial risk;Financial stability;Finland

URL

http://www.imf.org/external/pubs/ft/scr/2017/cr1705.pdf



Record ID

685     [ Page 1 of 34, No. 5 ]

Date

2017-01

Author

Razin, Assaf

Title

Israel's Triumph over Inflation: The Long and Winding Road

Summary /
Abstract

The paper gives an economic-history perspective of the long struggle with Inflation. It covers the early acceleration to three-digit levels, lasting 8 years; The stabilization program, based on political backing triggered sharp fall in inflationary expectation, and consequently to sharp inflation reduction to two- digit levels; The convergence to the advanced countries' levels during the "great Moderation", And Israel's resistance to the deflation-depression forces that the 2008 crisis created. The emphasis is on the forces of globalization and the building of institutions, political, regulatory, financial, budget design, and monetary, which helped stabilize prices and output.

Keywords

Deflation-Depression forces; Hyperinflation; Stabilization

URL

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11787



Record ID

684     [ Page 1 of 34, No. 6 ]

Date

2016-12

Author

Darvas, Zsolt; Schoenmaker, Dirk; and Véron, Nicolas

Affiliation

Asian Development Bank Institute

Title

Reforms to the European Union Financial Supervisory and Regulatory Architecture and Their Implications for Asia

Summary /
Abstract

European Union (EU) countries offer a unique experience of financial regulatory and supervisory integration, complementing various other European integration efforts following the Second World War. Financial regulatory and supervisory integration was a very slow process before 2008, despite significant cross-border integration, especially of wholesale financial markets. However, the policy framework proved inadequate in the context of the major financial crisis in the EU starting in 2007, and especially in the euro area after 2010. That crisis triggered major changes to European financial regulation and to the financial supervisory architecture, most prominently with the creation of three new European supervisory authorities in 2011 and the gradual establishment of European banking union starting in 2012. The banking union is a major structural institutional change for the EU, arguably the most significant since the introduction of the euro. Even in its current highly incomplete form, and with no prospects for rapid completion, the banking union has improved financial supervision in the euro area and increased the euro area’s resilience. Asian financial integration lags well behind Europe, and there is no comparable political and legal integration. Nevertheless, Asia can draw useful lessons from European experiences in multiple areas that include the harmonization of the microprudential framework, proper macroprudential structures, and participation in global financial authorities.

Keywords

Financial regulation; banking union; european union; banking crisis

URL

https://www.adb.org/sites/default/files/publication/212176/adbi-wp615.pdf



Record ID

683     [ Page 1 of 34, No. 7 ]

Date

2017-01

Author

Svensson, Lars E O

Affiliation

Centre for Economic Policy Research

Title

Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?

Summary /
Abstract

"Leaning against the wind" (of asset prices and credit booms) (LAW), that is, a somewhat tighter monetary policy and a higher policy interest rate, has costs in terms of a weaker economy with higher unemployment and lower inflation. It has been justified by possible benefits in terms of a lower probability or magnitude of a future financial crisis. A worse macro outcome in the near future is then considered to be an acceptable cost to be traded off against a better expected macro outcome further into the future. But a crisis can come any time, and the cost of a crisis is higher if initially the economy is weaker due to previous LAW. LAW thus has an additional cost in the form of a higher cost of a crisis when a crisis occurs. With this additional cost, for existing empirical estimates, the costs of LAW exceed by a substantial margin the possible benefits from a lower probability of a crisis. Furthermore, empirically a lower probability of a crisis is associated with lower real debt growth. But if monetary policy is neutral in the long run, it cannot affect real debt in the long run. Then, if a higher policy rate would result in lower debt growth and a lower probability of a crisis for a few years, this is followed by higher debt growth and a higher probability of a crisis in the future. This implies that the cumulated benefits over time of LAW are close to zero. But even if monetary policy is assumed to be non-neutral and permanently affect real debt, empirically the benefits are still less than the costs. Finally, somewhat surprisingly, less effective macroprudential policy, and generally a credit boom, with resulting higher probability, magnitude, or duration of a crisis, increase costs of LAW more than benefits, thus making costs exceed benefits by an even larger margin.

Keywords

Financial stability; macroprudential policy; monetary policy

URL

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11739



Record ID

682     [ Page 1 of 34, No. 8 ]

Date

2016-12

Author

Andrew Filardo and Phurichai Rungcharoenkitkul

Affiliation

Monetary and Economic Department, Bank for International Settlements

Title

A quantitative case for leaning against the wind

Summary /
Abstract

Should a monetary authority lean against the build-up of financial imbalances? We study this policy question in an environment in which there are recurring cycles of financial imbalances that develop over time and eventually collapse in a costly manner. The optimal policy reflects the trade-off between the short-run macroeconomic costs of leaning against the wind and the longer-run benefits of stabilising the financial cycle. We model the financial cycle as a nonlinear Markov regime-switching process, calibrate the model to US data and characterise the optimal monetary policy. Leaning systematically over the whole financial cycle is found to outperform policies of "benign neglect" and "late-in-the-cycle" discretionary interventions. This conclusion is robust to a wide range of alternative assumptions and supports an orientation shift in monetary policy frameworks away from narrow price stability to a joint consideration of price and financial stability.

Keywords

Monetary policy, financial stability, leaning against the wind, financial cycle, time-varying transition probability Markov regime-switching model

URL

http://www.bis.org/publ/work594.pdf



Record ID

681     [ Page 1 of 34, No. 9 ]

Date

2017-01

Author

Esteban Gómez, Angélica Lizarazo, Juan Carlos Mendoza, and Andrés Murcia

Affiliation

Banco de la República de Colombia

Title

Evaluating the Impact of Macro-prudential Policies in Colombia's Credit Growth

Summary /
Abstract

Macro-prudential tools have been used around the world as a mechanism to control potential risks and imbalances in the financial sector. Colombia is a good example of a country that has employed different regulatory measures to manage systemic risks in the economy. The purpose of this paper is to evaluate the effectiveness of two policies employed in said country to increase the resilience of the system and to moderate exuberance in credit supply. The first measure, the counter-cyclical reserve requirement, was implemented in 2007 to control excessive credit growth. The second tool corresponds to the dynamic provisioning scheme for commercial loans, whose objective was to consolidate a counter-cyclical buffer through loan loss provision requirements. To perform this analysis a rich data set based on loan-by-loan information for Colombian banks during the period between 2006 and 2009 is used. A fixed effects panel model is estimated using debtors', banks' and macroeconomic characteristics as control variables. In addition, a difference in differences estimation is performed to evaluate the impact of the aforementioned policies. Findings suggest that dynamic provisions and the countercyclical reserve requirement had a negative effect on credit growth, and that said effect differs conditioned on bank-specific characteristics. Results also suggest that the aggregate macro-prudential policy stance in Colombia has worked as an effective stabilizer of credit cycles, with some preliminary evidence also pointing towards significant effects in reducing bank risk-taking. Moreover, evidence is found that macro-prudential policies have worked as a complement of monetary policy, accompanying the stabilizing effects of changes in interest rates on credit growth.

Keywords

Macroprudential policies, Reserve requirements, Credit growth, Dynamic provisioning, Credit registry data

URL

http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_980.pdf



Record ID

680     [ Page 1 of 34, No. 10 ]

Date

2017-01

Author

Svensson, Lars E O

Affiliation

Centre for Economic Policy Research

Title

Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?

Summary /
Abstract

"Leaning against the wind" (of asset prices and credit booms) (LAW), that is, a somewhat tighter monetary policy and a higher policy interest rate, has costs in terms of a weaker economy with higher unemployment and lower inflation. It has been justified by possible benefits in terms of a lower probability or magnitude of a future financial crisis. A worse macro outcome in the near future is then considered to be an acceptable cost to be traded off against a better expected macro outcome further into the future. But a crisis can come any time, and the cost of a crisis is higher if initially the economy is weaker due to previous LAW. LAW thus has an additional cost in the form of a higher cost of a crisis when a crisis occurs. With this additional cost, for existing empirical estimates, the costs of LAW exceed by a substantial margin the possible benefits from a lower probability of a crisis. Furthermore, empirically a lower probability of a crisis is associated with lower real debt growth. But if monetary policy is neutral in the long run, it cannot affect real debt in the long run. Then, if a higher policy rate would result in lower debt growth and a lower probability of a crisis for a few years, this is followed by higher debt growth and a higher probability of a crisis in the future. This implies that the cumulated benefits over time of LAW are close to zero. But even if monetary policy is assumed to be non-neutral and permanently affect real debt, empirically the benefits are still less than the costs. Finally, somewhat surprisingly, less effective macroprudential policy, and generally a credit boom, with resulting higher probability, magnitude, or duration of a crisis, increase costs of LAW more than benefits, thus making costs exceed benefits by an even larger margin.

Keywords

Financial stability; macroprudential policy; monetary policy

URL

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11739



Record ID

679     [ Page 1 of 34, No. 11 ]

Date

2016-12

Author

Adrian, Tobias and Duarte, Fernando M.

Affiliation

Federal Reserve Bank of New York

Title

Financial vulnerability and monetary policy

Summary /
Abstract

We present a parsimonious New Keynesian model that features financial vulnerabilities. The vulnerabilities generate time varying downside risk of GDP growth by driving the dynamics of risk premia. Monetary policy impacts the output gap directly via the IS curve, and indirectly via its impact on financial vulnerabilities. The optimal monetary policy rule always depends on financial vulnerabilities in addition to output, inflation, and the real rate. We show that a classic Taylor rule exacerbates downside risk of GDP growth relative to an optimal Taylor rule, thus generating welfare losses associated with negative skewness of GDP growth.

Keywords

Monetary policy; macro-finance; financial stability

URL

https://www.newyorkfed.org/research/staff_reports/sr804.html



Record ID

678     [ Page 1 of 34, No. 12 ]

Date

2016-10

Author

Alyssa G. Anderson and John Kandrac

Affiliation

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.

Title

Monetary Policy Implementation and Private Repo Displacement : Evidence from the Overnight Reverse Repurchase Facility

Summary /
Abstract

In recent years, the scale and scope of major central banks' intervention in financial markets has expanded in unprecedented ways. In this paper, we demonstrate how monetary policy implementation that relies on such intervention in financial markets can displace private transactions. Specifically, we examine the experience with the Federal Reserve's newest policy tool, known as the overnight reverse repurchase (ONRRP) facility, to understand its effects on the repo market. Using exogenous variation in the parameters of the ONRRP facility, we show that participation in the ONRRP comes from substitution out of private repo. However, we also demonstrate that cash lenders, when investing in the ONRRP, do not cease trading with any of their dealer counterparties, highlighting the importance of lending relationships in the repo market. Lastly, using a confidential data set of repo transactions, we find that the presence of the Fed as a borrower in the repo market increases the bargaining power of cash lenders, who are able to command higher rates in their remaining private repo transactions.

Keywords

Repo ; Money market mutual funds ; Monetary policy ; Federal Reserve

URL

https://www.federalreserve.gov/econresdata/feds/2016/files/2016096pap.pdf



Record ID

677     [ Page 1 of 34, No. 13 ]

Date

2016-12

Author

Francesco Grigoli, Gabriel Di Bella, and Evelio Paredes

Affiliation

Western Hemisphere Department, IMF

Title

Inequality and Growth : A Heterogeneous Approach

Summary /
Abstract

The combination of stagnant growth and high levels of income inequality renewed the debate about whether a more even distribution of income can spur economic activity. This paper tests for crosscountry convergence in income inequality and estimates its impact on economic growth with a heterogeneous panel structural vector autoregression model, which addresses some empirical challenges plaguing the literature. We find that income inequality is converging across countries, and that its impact on economic growth is heterogeneous. In particular, while the median response of real per capita GDP growth to shocks in income inequality is negative and significant, the dispersion around the estimates is large, with at least one fourth of the countries in the sample presenting a positive effect. The results suggest that the negative effect is mainly driven by the Middle East and Central Asia and the Western Hemisphere across regions, and emerging markets across income levels. Finally, we find evidence that improved institutional frameworks can reduce the negative effect of income inequality on growth.

Keywords

Heterogeneity, Gini, income distribution, income inequality, income levels, growth, regions

URL

http://www.imf.org/external/pubs/ft/wp/2016/wp16244.pdf



Record ID

676     [ Page 1 of 34, No. 14 ]

Date

2016-12

Author

Sophia Chen and Romain Ranciere

Affiliation

Research Department, IMF

Title

Financial Information and Macroeconomic Forecasts

Summary /
Abstract

We study the forecasting power of financial variables for macroeconomic variables for 62 countries between 1980 and 2013. We find that financial variables such as credit growth, stock prices and house prices have considerable predictive power for macroeconomic variables at one to four quarters horizons. A forecasting model with financial variables outperforms the World Economic Outlook (WEO) forecasts in up to 85 percent of our sample countries at the four quarters horizon. We also find that cross-country panel models produce more accurate out-of-sample forecasts than individual country models.

Keywords

Macroeconomic Forecasting, Financial Markets and the Macroeconomy, Credit Growth, Stock Price, House Price

URL

http://www.imf.org/external/pubs/ft/wp/2016/wp16251.pdf



Record ID

675     [ Page 1 of 34, No. 15 ]

Date

2016-11

Author

Joseph E. Stiglitz

Affiliation

National Bureau of Economic Research

Title

The Theory of Credit and Macro-economic Stability

Summary /
Abstract

In the aftermath of the Great Recession, there is a growing consensus, even among central bank officials, concerning the limitations of monetary policy. This paper provides an explanation for the ineffectiveness of monetary policy, and in doing so provides a new framework for thinking about monetary policy and macro-economic activity. What matters is not so much the money supply or the T-bill interest rate, but the availability of credit, and the terms at which credit is made available. The latter variables may not move in tandem with the former. In particular, the spread between the T bill rate and the lending rate may increase, so even as the T bill rate decreases, the lending rate increases. An increase in credit availability may not lead to more spending on produced goods, but increased prices for land or other fixed assets; it can go to increased margins associated with increases in speculative activity; or it may go to spending abroad rather than at home. The paper explains the inadequacy of theories based on the zero low bound, and argues that the ineffectiveness of monetary policy is more related to the multiple alternative uses—beyond the purchase of domestically produced goods—of additional liquidity and to its adverse distributional consequences. The paper shows that while monetary policy is less effective than has been widely presumed, it is also more distortionary, identifying several distinct distortions.

Keywords

Credit, Macroeconomic Stability

URL

http://www.nber.org/papers/w22837.pdf



Record ID

674     [ Page 1 of 34, No. 16 ]

Date

2016-11

Author

Bianchi, Javier; Hatchondo, Juan Carlos; and Martinez, Leonardo

Affiliation

Federal Reserve Bank of Minneapolis; Indiana University; and International Monetary Fund

Title

International Reserves and Rollover Risk

Summary /
Abstract

We study the optimal accumulation of international reserves in a quantitative model of sovereign default with long-term debt and a risk-free asset. Keeping higher levels of reserves provides a hedge against rollover risk, but this is costly because using reserves to pay down debt allows the government to reduce sovereign spreads. Our model, parameterized to mimic salient features of a typical emerging economy, can account for a significant fraction of the holdings of international reserves, and the larger accumulation of both debt and reserves in periods of low spreads and high income. We also show that income windfalls, improved policy frameworks, larger contingent liabilities, and an increase in the importance of rollover risk imply increases in the optimal holdings of reserves that are consistent with the upward trend in reserves in emerging economies. It is essential for our results that debt maturity exceeds one period.

Keywords

Sovereign default; international reserves; rollover risk; safe assets

URL

https://www.minneapolisfed.org/research/wp/wp735.pdf



Record ID

673     [ Page 1 of 34, No. 17 ]

Date

2016-11

Author

Ingo Fender and Ulf Lewrick

Affiliation

Bank for International Settlements

Title

Adding it all up: the macroeconomic impact of Basel II and outstanding reform issues

Summary /
Abstract

As the Basel III package nears completion, the emphasis is shifting to monitoring its implementation and assessing the impact of the reforms. This paper presents a simple conceptual framework to assess the macroeconomic impact of the core Basel III reforms, including the leverage ratio surcharge that is being considered for global systemically important banks (G-SIBs). We use historical data for a large sample of major banks to generate a conservative approximation of the additional amount of capital that banks would need to raise to meet the new regulatory requirements, taking the potential impact of current efforts to enhance G-SIBs' total loss-absorbing capacity into account. To provide a high-level proxy for the effect of changes in capital allocation and bank business models on the estimated net benefits of regulatory reform, we simulate the effect of banks converging towards the "critical" average risk weights (or "density ratios") implied by the combined risk-weighted and leverage ratio-based capital requirements. While keeping in mind that quantifying the regulatory impact remains subject to caveats, the results suggest that Basel III can be expected to generate sizeable macroeconomic net benefits even after the implied changes to bank business models have been taken into account.

Keywords

Basel III, density ratio, global systemically important banks, leverage ratio, macroeconomic impact, risk-shifting

URL

http://www.bis.org/publ/work591.pdf



Record ID

672     [ Page 1 of 34, No. 18 ]

Date

2016-11

Author

Cociuba, Simona; Shukayev, Malik; and Ueberfeldt, Alexander

Affiliation

University of Western Ontario; University of Alberta; and Bank of Canada

Title

Managing Risk Taking with Interest Rate Policy and Macroprudential Regulations

Summary /
Abstract

We develop a model in which a financial intermediarys investment in risky assets risk taking is excessive due to limited liability and deposit insurance, and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with state-contingent macroprudential regulations either capital or leverage regulation, and a tax on pro ts achieves efficiency. Interest rate policy mitigates excessive risk taking, by altering the return and the supply of collateralizable safe assets. In contrast to commonly-used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates.

Keywords

Financial intermediation; risk taking; interest rate policy; macroprudential regulations; capital requirements; leverage ratio

URL

https://sites.ualberta.ca/~econwps/2016/wp2016-17.pdf



Record ID

671     [ Page 1 of 34, No. 19 ]

Date

2016-10

Author

Oriol Carreras, E Philip Davis, and Rebecca Piggott

Affiliation

National Institute of Economic and Social Research

Title

Macroprudential tools, Transmission and Modelling

Summary /
Abstract

The purpose of this paper is twofold. First, we review the theoretical and empirical literature on macroprudential policies and tools. Second, we test empirically the effectiveness of several macroprudential policies and tools using three datasets from the IMF and BIS that cover up to 19 OECD countries during 2000-2014, thus giving wide coverage of instruments. In addition, our focus on OECD countries gives us access to a wider range of control variables whose omission may lead to excessively favourable results on the impact of macroprudential policies. We find evidence that macroprudential polices are effective at curbing house price and credit growth, albeit some tools are more effective than others. These include, in particular, taxes on financial institutions and strict loan-to-value and debt-to-income ratio limits.

Keywords

Macroprudential Policies, Transmission, and Policy Effectiveness

URL

http://www.niesr.ac.uk/sites/default/files/publications/DP470.pdf



Record ID

670     [ Page 1 of 34, No. 20 ]

Date

2016-11

Author

Bhattarai, Saroj; and Neely, Christopher J.

Affiliation

University of Texas at Austin and Federal Reserve Bank of St. Louis

Title

A Survey of the Empirical Literature on U.S. Unconventional Monetary Policy

Summary /
Abstract

This paper reviews and critically evaluates the empirical literature on the effects of U.S. unconventional monetary policy on both financial markets and the real economy. In order to understand how such policies could work, we also briefly review the literature on the theory of such policies. We show that event studies provide very strong evidence that U.S. unconventional policy announcements have strongly influenced international bond yields, exchange rates, and equity prices in the desired manner. In addition, such studies indicate that such policies curtailed market perceptions of extreme events. Calibrated modeling and vector autoregressive (VAR) exercises strongly suggest that these policies significantly improved macroeconomic outcomes, raising U.S. GDP and CPI, through these changes in asset prices. Both event studies and VARs imply positive international spillovers of such policies.

Keywords

Quantitative easing; event study; unconventional monetary policy; zero lower bound

URL

https://research.stlouisfed.org/wp/2016/2016-021.pdf



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