International Spillovers of Forward Guidance Shocks

56 Pages Posted: 10 Aug 2020

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

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: July 3, 2020

Abstract

We estimate a two-country model of the US and Canada over the post 2009 sample to study the cross-country spillovers of forward guidance shocks. To do so, we propose a method to identify forward guidance shocks during the fixed interest rate regime. US forward guidance shocks have a larger impact than conventional monetary policy shocks. A 2 quarter expansionary forward guidance shock decreases Canadian output by about 0.2% to 0.4% on impact. The effect of US forward guidance shocks on Canadian output, unlike conventional policy shocks, depends crucially on the state of the US risk premium shock. The estimated forward guidance shocks coincide with significant US monetary policy announcements such as the introduction of calendar based guidance.

Keywords: forward guidance shocks, identification, spillovers, zero lower bound

JEL Classification: E2, E4, E5, F4

Suggested Citation

Jones, Callum and Kulish, Mariano and Rees, Daniel, International Spillovers of Forward Guidance Shocks (July 3, 2020). BIS Working Paper No. 870, Available at SSRN: https://ssrn.com/abstract=3666371

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

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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