International Spillovers of Forward Guidance Shocks

IMF Working Papers, May 15, 2018

Source details

Canonical URL

International Spillovers of Forward Guidance Shocks

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Callum Jones, Mariano Kulish, Daniel M. Rees
• Published: May 15, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484353554.001

Summary

• After 2007, countries that cut their policy interest rates close to zero turned, among other policies, to forward guidance.
• A two-country model of the U.S. and Canada is estimated 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.
• 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.

Main findings

• Expansionary U.S. forward guidance shocks depress Canadian output.
• The depressive effect on Canadian output from forward guidance shocks is twice as large as the effect from conventional policy shocks.
• State dependence: the impact of U.S. forward guidance shocks on Canadian output can be five times smaller when U.S. demand is weak.

Policy implications and interpretation

• Forward guidance by a large economy can have stronger international spillovers on trading partners than conventional policy shocks.
• The magnitude of spillovers from forward guidance is state-dependent, implying that the international effects of unconventional monetary policy instruments may vary with domestic demand conditions in the policy origin country.

Subject and keywords

• 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

Source: International Spillovers of Forward Guidance Shocks, IMF Working Papers (May 15, 2018), Working Paper No. 2018/114.

Content in this bundle

• International Spillovers of Forward Guidance Shocks, WP/18/114, May 2018
  • International Spillovers of Forward Guidance Shocks, WP/18/114, May 2018 (Markdown version)
  • International Spillovers of Forward Guidance Shocks, WP/18/114, May 2018 (PDF)