An Analysis of the Literature on International Unconventional Monetary Policy
138 Pages Posted: 4 Nov 2016 Last revised: 21 Feb 2019
Date Written: 2016-11-28
This paper critically evaluates the literature on international unconventional monetary policies. We begin by reviewing the theories of how such heterogeneous policies could work. Empirically, event studies provide compelling evidence that international asset purchase announcements have strongly influenced international bond yields, exchange rates, and equity prices in the desired manner and curtailed market perceptions of extreme events. Calibrated modeling and vector autoregressive (VAR) exercises imply that these policies significantly improved macroeconomic outcomes, raising output and prices. Central bankers give a measured, positive assessment to most unconventional monetary policy. Despite qualified successes, we recommend that central banks reserve these policies for financial crises and/or times when the zero bound constrains conventional monetary policy.
Keywords: unconventional monetary policy, effective lower bound, quantitative easing, event study
JEL Classification: E51, E58, E61, F31, G12
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