International Spillovers of Forward Guidance Shocks
44 Pages Posted: 1 Aug 2018
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International Spillovers of Forward Guidance Shocks
International Spillovers of Forward Guidance Shocks
Date Written: May 2018
Abstract
After 2007, countries that cut their policy interest rates close to zero turned, amongother policies, to forward guidance. We estimate a two-country model of the U.S. andCanada to quantify how unexpected changes in U.S. forward guidance affected Canada.Expansionary U.S. forward guidance shocks, like conventional policy shocks, are beggar-thy-neighborand depress Canadian output, but by twice as much as conventionalshocks. We find that the effect of U.S. forward guidance shocks on Canadian output,unlike conventional policy shocks, depends on the state of U.S. demand and can be fivetimes smaller when U.S. demand is weak.
Keywords: Spillovers, Forward Guidance, Unconventional Monetary Policy, Zero Lower Bound, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics
JEL Classification: E32, E52, F41
Suggested Citation: Suggested Citation