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The effectiveness of the Fed’s quantitative easing policy: New evidence based on international interest rate differentials

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  • Belke, Angar
  • Gros, Daniel
  • Osowski, Thomas

Abstract

This paper explores the effects of non-standard monetary policies on international yield relationships. We first document that long-term rates followed a common global downward trend that had already manifested itself prior to the financial crisis. The bond-buying operations (commonly dubbed Quantitative Easing (QE)) of the US Federal Reserve did not disturb this global co-movement – i.e. the global downward trend in interest rates. We model the relationship between USD and euro (riskless) long-term interest rates using a Cointegrated Vector Autoregressive Model (CVAR) employing recursive estimation methods. We find no evidence that QE1 (or the QE episodes) destabilized the transatlantic interest-rate relationship, nor the relationship between interest rates and the US dollar exchange rate. A robustness test using a Vector Autoregressive Model (VAR) with interest rates, inflation rates and output differentials for 11 countries (relative to US) yielded the same result. There is thus little evidence that central bank bond-buying in the US had an independent, distinct impact on US interest rates.

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  • Belke, Angar & Gros, Daniel & Osowski, Thomas, 2017. "The effectiveness of the Fed’s quantitative easing policy: New evidence based on international interest rate differentials," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 335-349.
  • Handle: RePEc:eee:jimfin:v:73:y:2017:i:pb:p:335-349
    DOI: 10.1016/j.jimonfin.2017.02.011
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    5. Hajek, Jan & Horvath, Roman, 2018. "International spillovers of (un)conventional monetary policy: The effect of the ECB and the US Fed on non-euro EU countries," Economic Systems, Elsevier, vol. 42(1), pages 91-105.
    6. Malliaropulos, Dimitris & Migiakis, Petros, 2018. "The re-pricing of sovereign risks following the Global Financial Crisis," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 39-56.
    7. Stefano Neri & Stefano Siviero, 2018. "The Non-Standard Monetary Policy Measures of the ECB: Motivations, Effectiveness and Risks," Credit and Capital Markets, Credit and Capital Markets, vol. 51(4), pages 513-560.
    8. Beck, Roland & Duca, Ioana A. & Stracca, Livio, 2019. "Medium term treatment and side effects of quantitative easing: international evidence," Working Paper Series 2229, European Central Bank.

    More about this item

    Keywords

    Quantitative easing; Unconventional monetary policies; Time series econometrics; Cointegrated VAR; Recursive methods;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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