Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates

Ken Miyajima, Madhusudan Mohanty and James Yetman

No 478, BIS Working Papers from Bank for International Settlements

Abstract: This paper reviews the role of long-term interest rates in international monetary transmission and related policy challenges in the wake of exceptionally easy US monetary policy. It employs a panel VAR model to examine the impact of a very low US term premium on relatively small open Asian economies. The results show that unconventional US monetary policy spills over to Asia mainly through low domestic bond yields and rapid growth of domestic bank credit. Financial integration does not appear to reduce the control of national monetary authorities over short-term policy rates. However, it does compromise control over long-term rates that are key determinants of economic activity. In light of the results, the paper reviews potential policy options to deal with volatile term and risk premiums.

Keywords: Asian economies; international monetary transmission; long term interest rates; monetary policy; risk premium (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-12
New Economics Papers: this item is included in nep-cba, nep-mon, nep-opm and nep-sea
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Citations: View citations in EconPapers (41)

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