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International channels of the Fed’s unconventional monetary policy

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  • Michael D. Bauer
  • Christopher J. Neely

Abstract

Previous research has established that the Federal Reserve large scale asset purchases (LSAPs) significantly influenced international bond yields. This paper analyzes the channels through which these effects occurred. We use dynamic term structure models to decompose international yield changes into changes in term premia and expected short rates. The conclusions for most countries are model dependent. Models that impose a unit root tend to imply large signaling effects for Australia, Canada, Germany and the United States. Models that do not restrict persistence imply negligible signaling effects for any country. Our preferred bias-corrected model implies large signaling effects for Canada and the United States. The idea that LSAP announcements signal information about Canadian rates is intuitively attractive because conventional US monetary policy shocks strongly predict Canadian rates.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-028.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-028

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Keywords: Monetary policy ; Bonds ; International finance;

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  1. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
  2. Hausman, Joshua & Wongswan, Jon, 2011. "Global asset prices and FOMC announcements," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 547-571, April.
  3. Carlo Rosa, 2012. "How "unconventional" are large-scale asset purchases? The impact of monetary policy on asset prices," Staff Reports 560, Federal Reserve Bank of New York.
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Cited by:
  1. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2012. "A global monetary tsunami? On the spillovers of US Quantitative Easing," CEPR Discussion Papers 9195, C.E.P.R. Discussion Papers.

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