Working Paper: CEPR ID: DP15006
Authors: Jonathan Kearns; Andreas Schrimpf; Fan Dora Xia
Abstract: This paper relies on a high-frequency identification approach to provide new insights into monetary policy spillovers by major central banks. Our long and broad sample (1999-2019, from four major economies to 47 advanced and emerging market economies) allows us to accurately identify the properties of spillovers and to shed light on different transmission channels. We find that spillovers by the Fed to foreign interest rates are large, but more surprisingly, document an intensification of spillovers by the ECB over time. Spillovers are more significant to bond yields in advanced economies than they are to those in emerging markets. Differentiating across key spillover channels, we find strongest support for a financial links channel, but weaker evidence for the macroeconomic links channel and FX regime channel.
Keywords: monetary policy spillovers; high-frequency data; financial integration
JEL Codes: E44; F36; F42; F65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve (Fed) (E52) | foreign interest rates (E43) |
| European Central Bank (ECB) (E58) | foreign interest rates (E43) |
| spillovers from Fed (E52) | bond yields in advanced economies (E43) |
| spillovers from ECB (F41) | bond yields in advanced economies (E43) |
| financial openness (F30) | spillover strength (C21) |
| macroeconomic links (E19) | spillover strength in emerging markets (F69) |
| global financial cycle (F65) | domestic financial conditions (F30) |