Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies

53 Pages Posted: 12 May 2017

See all articles by Joseph Gagnon

Joseph Gagnon

Peterson Institute

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Juan M. Londono

Federal Reserve Board of Governors

Christian Saborowski

International Monetary Fund (IMF)

Horacio Sapriza

Board of Governors of the Federal Reserve System

Date Written: March 2017

Abstract

This paper explores the effects of unconventional monetary and exchange rate policies. We find that official foreign asset purchases have large effects on current accounts that diminish as capital mobility rises and spill over to financially integrated countries. There is an additional effect through the stock of central bank assets. Domestic asset purchases have an effect on current accounts only when capital mobility is low. We also find that rising US bond yields drive foreign yields, stock prices and depreciations, but less so on days of policy announcements. We develop a theoretical model that is broadly consistent with our results.

Keywords: Foreign exchange intervention, current account balance, unconventional monetary policy, quantitative easing, General, General

JEL Classification: E50, F30, F3

Suggested Citation

Gagnon, Joseph and Bayoumi, Tamim and Londono-Yarce, Juan-Miguel and Saborowski, Christian and Sapriza, Horacio, Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies (March 2017). IMF Working Paper No. 17/56. Available at SSRN: https://ssrn.com/abstract=2967394

Joseph Gagnon (Contact Author)

Peterson Institute ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://www.piie.com

Tamim Bayoumi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Juan-Miguel Londono-Yarce

Federal Reserve Board of Governors ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Christian Saborowski

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Horacio Sapriza

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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