Explaining Monetary Spillovers: The Matrix Reloaded

73 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020

See all articles by Jonathan Kearns

Jonathan Kearns

Bank for International Settlements (BIS) - Monetary and Economic Department

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 3 versions of this paper

Date Written: July 2020

Abstract

This paper relies on a high-frequency identification approach to provide new insights into monetary policy spillovers by major central banks. Our long and broad sample (1999-2019, from four major economies to 47 advanced and emerging market economies) allows us to accurately identify the properties of spillovers and to shed light on different transmission channels. We find that spillovers by the Fed to foreign interest rates are large, but more surprisingly, document an intensification of spillovers by the ECB over time. Spillovers are more significant to bond yields in advanced economies than they are to those in emerging markets. Differentiating across key spillover channels, we find strongest support for a financial links channel, but weaker evidence for the macroeconomic links channel and FX regime channel.

Keywords: Financial Integration, high-frequency data, monetary policy spillovers

JEL Classification: E44, F36, F42, F65

Suggested Citation

Kearns, Jonathan and Schrimpf, Andreas and Xia, Fan Dora, Explaining Monetary Spillovers: The Matrix Reloaded (July 2020). CEPR Discussion Paper No. DP15006, Available at SSRN: https://ssrn.com/abstract=3650121

Jonathan Kearns (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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