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International Spillovers of Monetary Policy: Conventional Policy vs. Quantitative Easing

Author

Listed:
  • Stephanie E. Curcuru

    (Board of Governors of the Federal Reserve System)

  • Steven B. Kamin

    (American Enterprise Institute)

  • Canlin Li

    (Board of Governors of the Federal Reserve System)

  • Marius Rodriguez

    (Board of Governors of the Federal Reserve System)

Abstract

This paper evaluates the popular view that quantitative easing exerts greater international spillovers than conventional monetary policies. To distinguish the effects of these policies, we use a term structure model to decompose longer-term bond yields into expected short-term interest rates and term premia. We find that expected short-term interest rates have larger spillover effects than term premia on the U.S. dollar. We also find that foreign yields are at least as sensitive to U.S. short rates as to term premia, and more so for emerging market economies. All told, our findings contradict the popular view that quantitative easing (which is generally thought to work by affecting term premia) exerts greater international spillovers than conventional monetary policies (which are generally thought to work through expected rates).

Suggested Citation

  • Stephanie E. Curcuru & Steven B. Kamin & Canlin Li & Marius Rodriguez, 2023. "International Spillovers of Monetary Policy: Conventional Policy vs. Quantitative Easing," International Journal of Central Banking, International Journal of Central Banking, vol. 19(1), pages 111-158, March.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:1:a:3
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    References listed on IDEAS

    as
    1. Bowman, David & Londono, Juan M. & Sapriza, Horacio, 2015. "U.S. unconventional monetary policy and transmission to emerging market economies," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 27-59.
    2. Chen, Qianying & Filardo, Andrew & He, Dong & Zhu, Feng, 2016. "Financial crisis, US unconventional monetary policy and international spillovers," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 62-81.
    3. Ferrari, Massimo & Kearns, Jonathan & Schrimpf, Andreas, 2021. "Monetary policy’s rising FX impact in the era of ultra-low rates," Journal of Banking & Finance, Elsevier, vol. 129(C).
    4. Stephanie E. Curcuru, 2017. "The Sensitivity of the U.S. Dollar Exchange Rate to Changes in Monetary Policy Expectations," IFDP Notes 2017-09-22, Board of Governors of the Federal Reserve System (U.S.).
    5. Mehrotra, Aaron & Moessner, Richhild & Shu, Chang, 2019. "Interest rate spillovers from the United States: expectations, term premia and macro-financial vulnerabilities," BOFIT Discussion Papers 20/2019, Bank of Finland Institute for Emerging Economies (BOFIT).
    6. Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
    7. repec:zbw:bofitp:2019_020 is not listed on IDEAS
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    Cited by:

    1. Georgiadis, Georgios & Jarociński, Marek, 2023. "Global spillovers from multi-dimensional US monetary policy," Working Paper Series 2881, European Central Bank.

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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