Unconventional Monetary Policy in a Small Open Economy

Margaux MacDonald () and Michal Popiel

No 2017/268, IMF Working Papers from International Monetary Fund

Abstract: 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.

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 (search for similar items in EconPapers)
Pages: 61
Date: 2017-12-01
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Unconventional Monetary Policy in a Small Open Economy (2020)
Working Paper: Unconventional Monetary Policy In A Small Open Economy (2016)
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