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International Spillovers of Forward Guidance Shocks
Author:
Callum Jonesnull

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Mariano Kulishnull

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Daniel M. Reesnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 114
Language:
English
Publication Date:
15 May 2018
DOI:
https://doi.org/10.5089/9781484353554.001
ISBN:
9781484353554
ISSN:
1018-5941
Pages:
43
Keywords:
WP; monetary policy; Forward Guidance; Spillovers; Unconventional Monetary Policy; Zero Lower Bound; monetary policy shock; feedback rule; open economy; reaction function; fixed interest rate duration; Monetary expansion; Central bank policy rate; Inflation; Consumption; Global
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2018: Issue 114