On the International Spillovers of US Quantitative Easing

By Marcel Fratzscher, M. Duca, Roland Straub. Social Science Research Network, 2018

509 citations recorded by the source corpus.

The paper analyses the global spillovers of the Federal Reserve's unconventional monetary policy measures. First, we find that Fed measures in the early phase of the crisis (QE1), but not since 2010 (QE2), were highly effective in lowering sovereign yields and raising equity markets in the US and globally across 65 countries. Yet Fed policies functioned in a procyclical manner for capital flows to emerging markets (EMEs) and a counter-cyclical way for the US, triggering a portfolio rebalancing across countries out of EMEs into US equity and bond funds under QE1, and in the opposite direction under QE2. Second, the impact of Fed operations, such as Treasury and MBS purchases, on portfolio allocations and asset prices dwarfed those of Fed announcements, underlining the importance of the market repair and liquidity functions of Fed policies. Third, we find no evidence that FX or capital account policies helped countries shield themselves from these US policy spillovers, but rather that responses to Fed policies are related to country risk. The results thus illustrate how US unconventional measures have contributed to portfolio reallocation as well as a re-pricing of risk in global financial markets.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/656fd03e6545d79617af024b40469796eff30ec2

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Citations in the corpus

Non-monetary news in central bank communication (2018, result): “Similar to the (19)Using an event study, Gagnon et al. (2011) attribute the yield reaction to initial rounds of QE by the Fed to compression in the term premium.”
Global dollar credit: links to US monetary policy and leverage (2015, unknown): “Lo Duca et al (2014), like Fratzscher et al (2013), use individual Federal reserve bond purchases as regressors, while we consider their effect to be captured in the term premium.”
Determinants of Global Spillovers from US Monetary Policy (2015, background): “…to the literature on the spillovers from US monetary policy to global financial markets (see Craine and Martin, 2008; Ehrmann and Fratzscher, 2009; Wongswan, 2009; Neely, 2010; Hausman and Wongswan, 2011; Gurkaynak and Wright, 2011; Fratzscher et al., 2013; Moore et al., 2013; Rogers et al., 2014).”
Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison (2014, methodology): “Gagnon et al. (2011) add up the announcement effects of LSAP announcements from November 2008 to November 2009 on ten-year yields, and find that it comes to 91 basis points. These announcements were essentially complete surprises, and so this is a natural way to assess their immediate impact. It is ”
Regulatory arbitrage in action: evidence from banking flows and macroprudential policy (2015, background): “But there is more recent evidence that international spillovers of unconventional monetary policies may have been sizable, including to emerging market economies (see, for example Fratzscher, Duca, and Straub (2013)) and Bauer and Neely (2012) on the Feds LSAP program).”
Spillovers of U.S. unconventional monetary policy to emerging markets: The role of capital flows (2017, methodology): “These results are qualitatively very similar to the ones obtained by Gambacorta et al. (2014) in a similar setting for the U.”
Unconventional monetary policy and the spillovers to emerging markets (2016, background): “Previous research, e.g. Fratzscher et al. (2013) and others, argues that the effects of QE on domestic and also on foreign economies depends on the economic environment and, hence, is possibly time-varying.”