Financial Crisis, US Unconventional Monetary Policy and International Spillovers

31 Pages Posted: 1 Apr 2015

See all articles by Qianying Chen

Qianying Chen

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Andrew J. Filardo

Bank for International Settlements (BIS) - Monetary and Economic Department

Dong He

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

Feng Zhu

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2015

Abstract

We study the impact of US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error correction model (GVECM). We focus on the effects of reductions in the US term and corporate spreads. The estimated effects of QE are sizeable and vary across economies. First, we find the QE impact from reducing the US corporate spread to be more important than that from lowering the US term spread, consistent with Blinder's (2012) argument. Second, counterfactual exercises suggest that US QE measures, especially the cumulative effects of successive QE measures starting with the sizeable impact of the early actions, countered forces that could have led to episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on emerging economies are diverse but generally larger than those found for the United States and other advanced economies. The estimates suggest that US monetary policy spillovers contributed to overheating in Brazil, China and some other emerging economies in 2010 and 2011, but supported their respective recoveries in 2009 and 2012. These heterogeneous effects point to unevenly distributed benefits and costs of monetary policy spillovers.

Keywords: emerging economies, financial crisis, global VAR, international monetary policy spillovers, quantitative easing, unconventional monetary policy

JEL Classification: E43, E44, E52, E65, F42, F47

Suggested Citation

Chen, Qianying and Filardo, Andrew J. and He, Dong and Zhu, Feng, Financial Crisis, US Unconventional Monetary Policy and International Spillovers (March 2015). BIS Working Paper No. 494. Available at SSRN: https://ssrn.com/abstract=2579250

Qianying Chen (Contact Author)

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

United States
1-202-623-6633 (Phone)

Andrew J. Filardo

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Dong He

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Washington, DC 20431
United States
(202) 623-4062 (Phone)
(202) 589-4062 (Fax)

Feng Zhu

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41 61 280 9158 (Phone)
+41 61 280 9100 (Fax)

HOME PAGE: http://pantheon.yale.edu/~fz9

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