Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies

By Joseph E. Gagnon, Tamim Bayoumi, Juan M. Londono, Christian Saborowski, Horacio Sapriza

March 13, 2017

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Format: Chicago

Joseph E. Gagnon, Tamim Bayoumi, Juan M. Londono, Christian Saborowski, and Horacio Sapriza. Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper explores the effects of unconventional monetary and exchange rate policies. We find that official foreign asset purchases have large effects on current accounts that diminish as capital mobility rises and spill over to financially integrated countries. There is an additional effect through the stock of central bank assets. Domestic asset purchases have an effect on current accounts only when capital mobility is low. We also find that rising US bond yields drive foreign yields, stock prices and depreciations, but less so on days of policy announcements. We develop a theoretical model that is broadly consistent with our results.

Subject: Balance of payments, Bond yields, Current account, Current account balance, Exchange rates, Financial institutions, Foreign exchange, Monetary policy, Unconventional monetary policies

Keywords: Announcement day, Baseline current account parameter, Bond yields, Capital mobility, Current account, Current account balance, Current account shock, Exchange rates, Financial asset, Foreign exchange intervention, Global, Net official flows, QE coefficient, QE policy, QE variable, Quantitative easing, Unconventional monetary policies, Unconventional monetary policy, WP

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/056
Stock No:

WPIEA2017056
ISBN:

9781475586237
ISSN:

1018-5941

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