Explaining Monetary Spillovers: The Matrix Reloaded

67 Pages Posted: 7 Jan 2019

See all articles by Jonathan Kearns

Jonathan Kearns

Bank for International Settlements (BIS) - Monetary and Economic Department

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 3 versions of this paper

Date Written: November 20, 2018

Abstract

Using monetary policy shocks for seven advanced economy central banks, measured at high-frequency, we document the strength and characteristics of interest rate spillovers to 47 advanced and emerging market economies. Our main goal is to assess different channels through which spillovers occur and why some countries' interest rates respond more than others. We find that there is no evidence that spillovers relate to real linkages, such as trade flows. There is some indication that exchange rate regimes influence the extent of spillovers. By far the strongest determinant of interest rate spillovers is financial openness. Countries that have stronger bilateral (and aggregate) financial links with the US or euro area are susceptible to stronger interest rate spillovers. These effects are much more pronounced at the longer end of the yield curve, indicating that while countries retain policy rate independence, financial conditions are influenced by global yields.

Keywords: monetary policy spillovers, high-frequency data, financial integration

JEL Classification: E44, F36, F42, F65

Suggested Citation

Kearns, Jonathan and Schrimpf, Andreas and Xia, Fan Dora, Explaining Monetary Spillovers: The Matrix Reloaded (November 20, 2018). BIS Working Paper No. 757, Available at SSRN: https://ssrn.com/abstract=3302310

Jonathan Kearns (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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