IMF Working Papers

International Spillovers of Forward Guidance Shocks

By Callum Jones, Mariano Kulish, Daniel M. Rees

May 15, 2018

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Callum Jones, Mariano Kulish, and Daniel M. Rees International Spillovers of Forward Guidance Shocks, (USA: International Monetary Fund, 2018) accessed November 8, 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

After 2007, countries that cut their policy interest rates close to zero turned, among other policies, to forward guidance. We estimate a two-country model of the U.S. and Canada to quantify how unexpected changes in U.S. forward guidance affected Canada. Expansionary U.S. forward guidance shocks, like conventional policy shocks, are beggar-thy-neighbor and depress Canadian output, but by twice as much as conventional shocks. We find that the effect of U.S. forward guidance shocks on Canadian output, unlike conventional policy shocks, depends on the state of U.S. demand and can be five times smaller when U.S. demand is weak.

Subject: Central bank policy rate, Consumption, Financial sector policy and analysis, Financial services, Inflation, Monetary expansion, Monetary policy, National accounts, Prices, Spillovers

Keywords: Central bank policy rate, Consumption, Feedback rule, Fixed interest rate duration, Forward Guidance, Global, Inflation, Monetary expansion, Monetary policy, Monetary policy shock, Open economy, Reaction function, Spillovers, Unconventional Monetary Policy, WP, Zero Lower Bound

Publication Details

  • Pages:

    43

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/114

  • Stock No:

    WPIEA2018114

  • ISBN:

    9781484353554

  • ISSN:

    1018-5941

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