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International Transmission of Quantitative Easing Policies: Evidence from Canada

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  • Serdar Kabaca
  • Kerem Tuzcuoglu

Abstract

What are the cross-border spillovers from major economies’ quantitative easing (QE) policies to their trading partners? We provide evidence by concentrating on spillovers from the US to Canada during the zero lower bound period when QE policies were actively used. We identify QE shocks in the US and estimate their impact on a large number of Canadian macroeconomic and financial variables. We then analyze transmission channels of foreign QE shocks to the domestic economy. Our results suggest that US QE shocks are expansionary for Canada despite a currency appreciation. This is because they spill over to domestic borrowing costs, lowering long-term rates as well as financial premiums, and increasing asset prices. We find evidence for both portfolio balance and risk channels.

Suggested Citation

  • Serdar Kabaca & Kerem Tuzcuoglu, 2022. "International Transmission of Quantitative Easing Policies: Evidence from Canada," Staff Working Papers 22-30, Bank of Canada.
    • Handle: RePEc:bca:bocawp:22-30
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    References listed on IDEAS

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    Cited by:

    1. Martin Feldkircher & Helene Schuberth, 2023. "Understanding Monetary Spillovers in Highly Integrated Regions: The Case of Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(4), pages 859-893, August.
    2. Bank for International Settlements, 2023. "Central bank asset purchases in response to the Covid-19 crisis," CGFS Papers, Bank for International Settlements, number 68, december.

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    More about this item

    Keywords

    Business fluctuations and cycles; International topics; Monetary policy transmission;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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