An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies

44 Pages Posted: 26 May 2020 Last revised: 30 Jan 2021

See all articles by Alessandro Rebucci

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jonathan Hartley

Harvard University, Harvard Kennedy School (HKS), Students

Daniel Jiménez

Universidad EAFIT, Students

Multiple version iconThere are 3 versions of this paper

Date Written: January 28, 2021

Abstract

This paper conducts an event study of 30 quantitative easing (QE) announcements made by 21 central banks on daily government bond yields and bilateral US dollar exchange rates in March and April 2020, in the midst of the global financial turmoil triggered by the COVID-19 outbreak. The paper also investigates the transmission of innovations to long-term interest rates in a standard GVAR model estimated with quarterly pre-COVID-19 data. We find that QE has not lost effectiveness in advanced economies and that its international transmission is consistent with the working of long-run uncovered interest rate parity and a large dollar shortage shock during the COVID-19 period. In emerging markets, the QE impact on bond yields is much stronger and its transmission to exchange rates is qualitatively different than in advanced economies. The GVAR evidence that we report illustrates the Fed's pivotal role in the global transmission of long-term interest rate shocks, but also the ample scope for country-specific interventions to affect local financial market conditions, even after controlling for common factors and spillovers from other countries. The GVAR evidence also shows that QE interventions can have sizable real effects on output driven by a very persistent impact on long-term interest rates.

Keywords: Bond Yields, Central Banks, COVID-19, Event Study, Exchange Rates, GVAR, Monetary Policy, Swap Lines, Quantitative Easing

JEL Classification: E51, E58, G12, G14, I18

Suggested Citation

Rebucci, Alessandro and Hartley, Jonathan and Jiménez, Daniel, An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies (January 28, 2021). Available at SSRN: https://ssrn.com/abstract=3607645 or http://dx.doi.org/10.2139/ssrn.3607645

Alessandro Rebucci (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jonathan Hartley

Harvard University, Harvard Kennedy School (HKS), Students ( email )

Cambridge, MA
United States

Daniel Jiménez

Universidad EAFIT, Students ( email )

Carrera 49 N° 7 sur – 50
Bogotá
Colombia

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