Working Paper: CEPR ID: DP16485
Authors: Silvia Miranda-Agrippino; Tsvetelina Nenova
Abstract: We compare the macroeconomic and financial spillovers of the unconventional monetary policies of the Fed and the ECB. Monetary policy tightenings in the two areas are followed by a contraction in global activity and trade, a retrenchment in global capital flows, a fall in global stock markets, and a rise in risk aversion. Bilateral spillovers are also powerful. Fed and ECB monetary policies propagate internationally through the same channels { trade and risk-taking {, but the magnitude of ECB spillovers is smaller. We postulate that the relative importance of the euro and the US dollar in the international financial system can help to explain such asymmetries, and produce tentative evidence that links the strength of the ECB spillovers to € exposure in trade invoicing and the pricing of financial transactions.
Keywords: Unconventional Monetary Policy; High-Frequency Identification; International Spillovers; Fed; ECB
JEL Codes: F42; E52; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy tightenings in either the Fed or ECB (E52) | Contraction in global output and trade (F69) |
| Monetary policy tightenings in either the Fed or ECB (E52) | Retrenchment in global capital flows (F32) |
| Monetary policy tightenings in either the Fed or ECB (E52) | Fall in global stock markets (F65) |
| Monetary policy tightenings in either the Fed or ECB (E52) | Increase in risk aversion (D81) |
| Strength of ECB spillovers (F65) | Trade invoicing and pricing of financial transactions (F38) |
| Tighter monetary policy (E52) | Increase in global risk aversion (F65) |
| Tighter monetary policy (E52) | Effects on asset prices internationally (G15) |
| ECB policies (E58) | Differential impact on global financial conditions (F65) |