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Global spillovers and domestic monetary policy

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  • Menzie D Chinn

Abstract

I discuss how the unconventional monetary policy measures implemented over the past several years – quantitative and credit easing, and forward guidance – can be analysed in the context of conventional models of asset prices, with particular reference to exchange rates. I then discuss alternative approaches to interpreting the effects of such policies, and review the empirical evidence. Finally, I examine the ramifications for thinking about the impact on exchange rates and asset prices of emerging market economies. I conclude that although the implementation of unconventional monetary policy measures may introduce more volatility into global markets, in general it will support global rebalancing by encouraging the revaluation of emerging market currencies.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 436.

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Length: 42 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:bis:biswps:436

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Related research

Keywords: Balance sheet; money supply; portfolio balance; forward guidance; yield curve; spreads; signaling; capital flows; rebalancing;

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References

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  1. Volker Wieland & Gunter Coenen, 2003. "The Zero-Interest-Rate Bound and the Role of the Exchange Rate for Monetary Policy in Japan," Computing in Economics and Finance 2003 138, Society for Computational Economics.
  2. Michael Woodford & Vasco Curdia, 2010. "The Central Bank's Balance Sheet as an Instrument of Monetary Policy," 2010 Meeting Papers 136, Society for Economic Dynamics.
  3. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  4. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. Richhild Moessner, 2014. "International spillovers from US forward guidance to equity markets," DNB Working Papers 427, Netherlands Central Bank, Research Department.

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