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International Transmission Channels of U.S. Quantitative Easing: Evidence from Canada

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  • Tatjana Dahlhaus
  • Kristina Hess
  • Abeer Reza

Abstract

The U.S. Federal Reserve responded to the great recession by reducing policy rates to the effective lower bound. In order to provide further monetary stimulus, they subsequently conducted large-scale asset purchases, quadrupling their balance sheet in the process. We assess the international spillover effects of this quantitative easing program on the Canadian economy in a factor-augmented vector autoregression (FAVAR) framework, by considering a counterfactual scenario in which the Federal Reserve’s long-term asset holdings do not rise in response to the recession. We find that U.S. quantitative easing boosted Canadian output, mainly through the financial channel.

Suggested Citation

  • Tatjana Dahlhaus & Kristina Hess & Abeer Reza, 2014. "International Transmission Channels of U.S. Quantitative Easing: Evidence from Canada," Staff Working Papers 14-43, Bank of Canada.
  • Handle: RePEc:bca:bocawp:14-43
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Friedrich, Christian, 2016. "Global inflation dynamics in the post-crisis period: What explains the puzzles?," Economics Letters, Elsevier, vol. 142(C), pages 31-34.
    2. Gregory Bauer & Gurnain Pasricha & Rodrigo Sekkel & Yaz Terajima, 2018. "The Global Financial Cycle, Monetary Policies, and Macroprudential Regulations in Small, Open Economies," Canadian Public Policy, University of Toronto Press, vol. 44(2), pages 81-99, June.
    3. Abeer Reza & Eric Santor & Lena Suchanek, 2015. "Quantitative Easing as a Policy Tool Under the Effective Lower Bound," Discussion Papers 15-14, Bank of Canada.
    4. Sami Alpanda & Serdar Kabaca, 2015. "International Spillovers of Large-Scale Asset Purchases," Staff Working Papers 15-2, Bank of Canada.
    5. Harahap, Berry & Bary, Pakasa & Panjaitan, Linda & Satyanugroho, Redianto, 2016. "Spillovers of United States and People’s Republic of China Shocks on Small Open Economies: The Case of Indonesia," ADBI Working Papers 616, Asian Development Bank Institute.
    6. Hongyi Chen & Andrew Tsang, 2016. "The Impact of US Monetary Policy and Other External Shocks on the Hong Kong Economy: A Factor-augmented VAR Approach," Working Papers 092016, Hong Kong Institute for Monetary Research.
    7. José Dorich & Nicholas Labelle St-Pierre & Vadym Lepetyuk & Rhys R. Mendes, 2018. "Could a higher inflation target enhance macroeconomic stability?," Canadian Journal of Economics, Canadian Economics Association, vol. 51(3), pages 1029-1055, August.
    8. Margaux MacDonald & Michal Ksawery Popiel, 2016. "Unconventional Monetary Policy In A Small Open Economy," Working Paper 1367, Economics Department, Queen's University.
    9. Martijn (M.I.) Droes & Ryan van Lamoen & Simona Mattheussens, 2017. "Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Assets Purchase Program," Tinbergen Institute Discussion Papers 17-080/IV, Tinbergen Institute.
    10. Potjagailo, Galina, 2016. "Spillover effects from euro area monetary policy across the EU: A factor-augmented VAR approach," Kiel Working Papers 2033, Kiel Institute for the World Economy (IfW).
    11. repec:eee:finana:v:61:y:2019:i:c:p:295-305 is not listed on IDEAS
    12. Sameer Khatiwada, 2017. "Quantitative Easing by the Fed and International Capital Flows," IHEID Working Papers 02-2017, Economics Section, The Graduate Institute of International Studies.

    More about this item

    Keywords

    International topics; Monetary policy framework; Transmission of monetary policy;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E - Macroeconomics and Monetary Economics
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F - International Economics
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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