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Unconventional Monetary Policy in a Small Open Economy
Author:
Ms. Margaux MacDonald
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and
Michał Ksawery Popiel
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 268
Language:
English
Publication Date:
01 Dec 2017
DOI:
https://doi.org/10.5089/9781484330944.001
ISBN:
9781484330944
ISSN:
1018-5941
Pages:
61
Keywords:
WP; federal funds rate; central bank; exchange rate; quantitative easing; Small open economy; unconventional monetary policy; Bayesian structural VAR; zero lower bound; international monetary policy transmission; shadow rate; monetary policy shock; industrial production; bank rate; lower bound; open economy; monetary policy spillover; Unconventional monetary policies; Industrial production; Central bank policy rate; Monetary expansion; Global
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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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 268