## Unconventional Monetary Policy in a Small Open Economy

_IMF Working Papers, December 1, 2017_

## Source details

**Canonical URL:** [Unconventional Monetary Policy in a Small Open Economy](https://www.imf.org/en/publications/wp/issues/2017/12/01/unconventional-monetary-policy-in-a-small-open-economy-45437)

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## Bibliographic details
- Authors: Margaux MacDonald, Michał Ksawery Popiel
- Published: December 1, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484330944.001

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### Objective and methodology
- Investigates the effects of unconventional monetary policy in a small open economy.
- Uses recently proposed shadow interest rates to capture unconventional monetary policy at the zero lower bound (ZLB).
- Estimates a Bayesian structural vector autoregressive model for Canada, treating foreign shocks as proxied by U.S. variables alone.

### Key findings
- During the ZLB period, Canadian unconventional monetary policy increased output (measured by industrial production) by 0.013 percent per month on average.
- During the ZLB period, US unconventional monetary policy raised Canadian output by 0.127 percent per month on average.
- Results demonstrate:
  - The effectiveness of domestic unconventional monetary policy in a small open economy.
  - Strong positive spillover effects from foreign unconventional monetary policies.

### Interpretation and implications
- Domestic shadow-rate based unconventional policy can produce measurable monthly increases in industrial production even at the ZLB.
- Foreign (U.S.) unconventional policies can have substantially larger positive spillovers on the small open economy examined (Canada) than domestic unconventional actions, per the estimated monthly effects.
- For small open economies, international transmission of unconventional monetary policy is an important channel to consider alongside domestic policy effectiveness.

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## Content in this bundle

- **Unconventional Monetary Policy in a Small Open Economy, WP/17/268, December 2017**
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_Source: https://www.imf.org/en/publications/wp/issues/2017/12/01/unconventional-monetary-policy-in-a-small-open-economy-45437_