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On the International Spillovers of US Quantitative Easing

Author

Listed:
  • Marcel Fratzscher

    (DIW Berlin, Humboldt-University Berlin and CEPR (E-mail: mfratzscher@diw.de))

  • Marco Lo Duca

    (European Central Bank (E-mail: marco.lo_duca@ecb.europa.eu))

  • Roland Straub

    (European Central Bank (E-mail: roland.straub@ecb.europa.eu))

Abstract

The paper analyses the global spillovers of the Federal Reserve's unconventional monetary policy measures. First, we find that Fed measures in the early phase of the crisis (QE1) were highly effective in lowering sovereign yields and raising equity markets, especially in the US relative to other countries. Fed measures since 2010 (QE2) boosted equities worldwide, while they had muted impact on yields across countries. Yet Fed policies functioned in a pro-cyclical manner for capital flows to emerging markets (EMEs) and a counter-cyclical way for the US, triggering a portfolio rebalancing across countries out of EMEs into US equity and bond funds under QE1, and in the opposite direction under QE2. Second, the impact of Fed operations, such as Treasury and MBS purchases, on portfolio allocations and asset prices dwarfed those of Fed announcements, underlining the importance of the market repair and liquidity functions of Fed policies. Third, we find no evidence that FX or capital account policies helped countries shield themselves from these US policy spillovers, but rather that responses to Fed policies are related to country risk. The results thus illustrate how US unconventional measures have contributed to portfolio reallocation as well as a re-pricing of risk in global financial markets.

Suggested Citation

  • Marcel Fratzscher & Marco Lo Duca & Roland Straub, 2015. "On the International Spillovers of US Quantitative Easing," IMES Discussion Paper Series 15-E-07, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:15-e-07
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    monetary policy; quantitative easing; portfolio choice; capital flows; Federal Reserve; United States; policy responses; emerging markets; panel data;

    JEL classification:

    • 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
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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