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International spillovers of forward guidance shocks

Author

Listed:
  • Callum Jones
  • Mariano Kulish
  • Daniel Rees

Abstract

We estimate a two-country model of the US and Canada over the post 2009 sample to study the cross-country spillovers of forward guidance shocks. To do so, we propose a method to identify forward guidance shocks during the fixed interest rate regime. US forward guidance shocks have a larger impact than conventional monetary policy shocks. A 2 quarter expansionary forward guidance shock decreases Canadian output by about 0.2% to 0.4% on impact. The effect of US forward guidance shocks on Canadian output, unlike conventional policy shocks, depends crucially on the state of the US risk premium shock. The estimated forward guidance shocks coincide with significant US monetary policy announcements such as the introduction of calendar based guidance.

Suggested Citation

  • Callum Jones & Mariano Kulish & Daniel Rees, 2020. "International spillovers of forward guidance shocks," BIS Working Papers 870, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:870
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    References listed on IDEAS

    as
    1. Dedola, Luca & Rivolta, Giulia & Stracca, Livio, 2017. "If the Fed sneezes, who catches a cold?," Journal of International Economics, Elsevier, vol. 108(S1), pages 23-41.
    2. Haberis, Alex & LipiƄska, Anna, 2012. "International policy spillovers at the zero lower bound," Bank of England working papers 464, Bank of England.
    3. Massimo Ferrari & Jonathan Kearns & Andreas Schrimpf, 2017. "Monetary policy's rising FX impact in the era of ultra-low rates," BIS Working Papers 626, Bank for International Settlements.
    4. Kulish, Mariano & Morley, James & Robinson, Tim, 2017. "Estimating DSGE models with zero interest rate policy," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 35-49.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    forward guidance shocks; identification; spillovers; zero lower bound;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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