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Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates

Author

Listed:
  • Ken Miyajima
  • Madhusudan Mohanty
  • James Yetman

Abstract

This paper reviews the role of long-term interest rates in international monetary transmission and related policy challenges in the wake of exceptionally easy US monetary policy. It employs a panel VAR model to examine the impact of a very low US term premium on relatively small open Asian economies. The results show that unconventional US monetary policy spills over to Asia mainly through low domestic bond yields and rapid growth of domestic bank credit. Financial integration does not appear to reduce the control of national monetary authorities over short-term policy rates. However, it does compromise control over long-term rates that are key determinants of economic activity. In light of the results, the paper reviews potential policy options to deal with volatile term and risk premiums.

Suggested Citation

  • Ken Miyajima & Madhusudan Mohanty & James Yetman, 2014. "Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates," BIS Working Papers 478, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:478
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Madhusudan Mohanty & Kumar Rishabh, 2016. "Financial intermediation and monetary policy transmission in EMEs: What has changed post-2008 crisis?," BIS Working Papers 546, Bank for International Settlements.
    2. repec:eee:reveco:v:54:y:2018:i:c:p:178-192 is not listed on IDEAS
    3. Chan-Guk Huh & Jie Wu, 2015. "Linkage between US monetary policy and emerging economies: the case of Korea?s financial market and monetary policy," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 4(3), pages 1-18, September.
    4. repec:eee:jimfin:v:75:y:2017:i:c:p:109-127 is not listed on IDEAS
    5. Paul Mizen, 2016. "Comments on "Financial globalisation and monetary independence"," BIS Papers chapters,in: Bank for International Settlements (ed.), Expanding the boundaries of monetary policy in Asia and the Pacific, volume 88, pages 227-230 Bank for International Settlements.
    6. repec:chb:bcchsb:v24c09pp285-307 is not listed on IDEAS
    7. Georgiadis, Georgios & Jancokova, Martina, 2017. "Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks," Globalization Institute Working Papers 314, Federal Reserve Bank of Dallas.
    8. Bank for International Settlements, 2016. "Expanding the boundaries of monetary policy in Asia and the Pacific," BIS Papers, Bank for International Settlements, number 88.
    9. Punzi, Maria Teresa & Chantapacdepong, Pornpinun, 2017. "Spillover Effects of Unconventional Monetary Policy in Asia and the Pacific," ADBI Working Papers 630, Asian Development Bank Institute.
    10. Chan-Guk Huh, 2015. "Normalization of unconventional US monetary policy and its implications: Korea?s monetary policy case," Proceedings of International Academic Conferences 2504115, International Institute of Social and Economic Sciences.
    11. Boris Hofmann & Elod Takáts, 2015. "International monetary spillovers," BIS Quarterly Review, Bank for International Settlements, September.
    12. Jonathan Kearns & Andreas Schrimpf & Dora Xia, 2018. "Explaining Monetary Spillovers: The Matrix Reloaded," BIS Working Papers 757, Bank for International Settlements.
    13. repec:ris:ecoint:0827 is not listed on IDEAS
    14. Jakree Koosakul & Ilhyock Shim, 2017. "The beneficial aspect of FX volatility for market liquidity," BIS Working Papers 629, Bank for International Settlements.
    15. Bernhard, Severin & Ebner, Till, 2017. "Cross-border spillover effects of unconventional monetary policies on Swiss asset prices," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 109-127.
    16. Jhuvesh Sobrun & Philip Turner, 2015. "Bond markets and monetary policy dilemmas for the emerging markets," BIS Working Papers 508, Bank for International Settlements.
    17. Cenedese, Gino & Elard, Ilaf, 2018. "Unconventional monetary policy and the portfolio choice of international mutual funds," Bank of England working papers 705, Bank of England.
    18. repec:onb:oenbmp:y:2018:i:q2/18:b:1 is not listed on IDEAS
    19. Peter Hördahl & Jhuvesh Sobrun & Philip Turner, 2016. "Low long-term interest rates as a global phenomenon," BIS Working Papers 574, Bank for International Settlements.

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    Keywords

    Asian economies; international monetary transmission; long term interest rates; monetary policy; risk premium;

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