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International channels of the Fed’s unconventional monetary policy

  • Michael D. Bauer
  • Christopher J. Neely

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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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2012-12.

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Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedfwp:2012-12
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  1. Refet Gurkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," Macroeconomics 0504013, EconWPA.
  2. 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.
  3. Glick, Reuven & Leduc, Sylvain, 2012. "Central bank announcements of asset purchases and the impact on global financial and commodity markets," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2078-2101.
  4. Joshua Hausman & Jon Wongswan, 2006. "Global asset prices and FOMC announcements," International Finance Discussion Papers 886, Board of Governors of the Federal Reserve System (U.S.).
  5. Fawley, Brett W. & Neely, Christopher J., 2013. "Four stories of quantitative easing," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 51-88.
  6. Jens H. E. Christensen & Glenn D. Rudebusch, 2012. "The Response of Interest Rates to US and UK Quantitative Easing," Economic Journal, Royal Economic Society, vol. 122(564), pages F385-F414, November.
  7. Jonathan H. Wright, 2012. "What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?," Economic Journal, Royal Economic Society, vol. 122(564), pages F447-F466, November.
  8. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  9. Michael D. Bauer & Glenn D. Rudebusch & Jing Cynthia Wu, 2012. "Correcting Estimation Bias in Dynamic Term Structure Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(3), pages 454-467, April.
  10. Michael D. Bauer & Glenn D. Rudebusch, 2013. "Monetary policy expectations at the zero lower bound," Working Paper Series 2013-18, Federal Reserve Bank of San Francisco.
  11. James D. Hamilton & Jing Cynthia Wu, 2011. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," NBER Working Papers 16956, National Bureau of Economic Research, Inc.
  12. Greg Duffee, 2011. "Forecasting with the term structure: The role of no-arbitrage restrictions," Economics Working Paper Archive 576, The Johns Hopkins University,Department of Economics.
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