Unconventional Monetary Policy in a Small Open Economy

By Margaux MacDonald, Michał Ksawery Popiel

December 1, 2017

Preview Citation

Format: Chicago

Margaux MacDonald, and Michał Ksawery Popiel. Unconventional Monetary Policy in a Small Open Economy, (USA: International Monetary Fund, 2017) accessed September 18, 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 investigates the effects of unconventional monetary policy in a small open economy. Using recently proposed shadow interest rates to capture unconventional monetary policy at the zero lower bound (ZLB) we estimate a Bayesian structural vector autoregressive model for Canada - a useful case where foreign shocks can be proxied by U.S. variables alone. We find that, during the ZLB period, Canadian unconventional monetary policy increased output (measured by industrial production) by 0.013 percent per month on average while US unconventional monetary policy raised Canadian output by 0.127 percent per month on average. Our results demonstrate the effectiveness of domestic unconventional monetary policy and the strong positive spillover effects that foreign unconventional monetary policies can have in a small open economy.

Subject: Banking, Central bank policy rate, Financial services, Industrial production, Monetary expansion, Monetary policy, Production, Unconventional monetary policies, Zero lower bound

Keywords: Bank rate, Bayesian structural VAR, Central bank, Central bank policy rate, Exchange rate, Federal funds rate, Global, Industrial production, Industrial production, International monetary policy transmission, Lower bound, Monetary expansion, Monetary policy shock, Monetary policy spillover, Open economy, Quantitative easing, Shadow rate, Small open economy, Unconventional monetary policies, Unconventional monetary policy, WP, Zero lower bound

Publication Details

Pages:

61
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/268
Stock No:

WPIEA2017268
ISBN:

9781484330944
ISSN:

1018-5941

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