An Analysis of the Literature on International Unconventional Monetary Policy

138 Pages Posted: 4 Nov 2016 Last revised: 21 Feb 2019

See all articles by Saroj Bhattarai

Saroj Bhattarai

University of Texas at Austin - Department of Economics

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Date Written: 2016-11-28

Abstract

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

Suggested Citation

Bhattarai, Saroj and Neely, Christopher J., An Analysis of the Literature on International Unconventional Monetary Policy (2016-11-28). FRB St. Louis Working Paper No. 2016-21. Available at SSRN: https://ssrn.com/abstract=2863716 or http://dx.doi.org/10.20955/wp.2016.021

Saroj Bhattarai (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8568 (Phone)
314-444-8731 (Fax)

HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

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