International Spillovers of Forward Guidance Shocks

44 Pages Posted: 1 Aug 2018

See all articles by Callum Jones

Callum Jones

Board of Governors of the Federal Reserve System

Mariano Kulish

The University of Sydney; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Daniel Rees

Reserve Bank of Australia - Economic Research

Multiple version iconThere are 2 versions of this paper

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

Jones, Callum and Kulish, Mariano and Rees, Daniel, International Spillovers of Forward Guidance Shocks (May 2018). IMF Working Paper No. 18/114, Available at SSRN: https://ssrn.com/abstract=3221172

Callum Jones (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

Mariano Kulish

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Daniel Rees

Reserve Bank of Australia - Economic Research ( email )

GPO Box 3947
Sydney, NSW 2001
Australia

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