Spillovers of US Unconventional Monetary Policy to Emerging and Advanced Countries

29 Pages Posted: 4 Jun 2019

See all articles by Zekeriya Yildirim

Zekeriya Yildirim

Anadolu University

Mehmet Ivrendi

Pamukkale University - Faculty of Economics and Administrative Sciences

Date Written: May 16, 2019

Abstract

This study investigates the international spillover effects of US unconventional monetary policy — frequently called large-scale asset purchases or quantitative easing (QE) — on advanced and emerging market economies, using VAR models with high-frequency daily data. Blinder (2010) argues that the QE measures primarily aim to reduce US interest rate spreads such as term premiums and risk premiums. Considering this argument, we use two interest rate spreads as indicators of the QE policy: the mortgage spread and term spread. Empirical findings, based on data from 20 emerging and 20 advanced countries, reveal that US unconventional monetary policies significantly affect financial conditions in both emerging and advanced countries by altering the risk-taking behavior of investors, which suggests that the risk-taking channel plays an important role in transmitting the effects of these policies to the rest of the world. The extent of these effects depends on the type of QE measures. QE measures such as purchases of private-sector securities that lower the US mortgage spread exert stronger and more significant spillover effects on international financial markets than do measures that reduce the US term spread. Furthermore, the estimated financial spillovers vary substantially across countries, as well as between and within the two country groups, emerging markets and advanced countries.

Keywords: US unconventional monetary policy, interest rate spreads, quantitative easing, emerging markets, spillovers, VAR

JEL Classification: E43, E44, E52, E65, F42

Suggested Citation

Yildirim, Zekeriya and Ivrendi, Mehmet, Spillovers of US Unconventional Monetary Policy to Emerging and Advanced Countries (May 16, 2019). Available at SSRN: https://ssrn.com/abstract=3389363 or http://dx.doi.org/10.2139/ssrn.3389363

Zekeriya Yildirim (Contact Author)

Anadolu University ( email )

Yunusemre Kampusü
26470 Eskisehir, Tepebasi 26470
Turkey

HOME PAGE: http://https://akademik.anadolu.edu.tr/zekeriyayildirim

Mehmet Ivrendi

Pamukkale University - Faculty of Economics and Administrative Sciences ( email )

Kinikli/Denizli, 20070
Turkey

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
62
Abstract Views
418
rank
415,509
PlumX Metrics