International effects of quantitative easing and foreign exchange intervention

Duhyeong Kim

Journal of International Economics, 2023, vol. 145, issue C

Abstract: A two-country general equilibrium model is developed to study the global consequences of quantitative easing and foreign exchange intervention. The model incorporates financial frictions such as limited commitment, differential pledgeability of assets as collateral, and a low supply of collateralizable assets. Due to differential asset pledgeability, financial intermediaries acquire different asset portfolios particular to their home country. Quantitative easing can reduce long-term nominal interest rates, mitigate financial frictions globally, and depreciate the currency of the country that supplies more pledgeable assets. The international effects of foreign exchange intervention depend on the implementing country. If implemented by the country that supplies more pledgeable assets, such intervention can ease financial frictions and enhance welfare globally.

Keywords: Quantitative easing; Foreign exchange intervention; Collateral constraint; Banking (search for similar items in EconPapers)
JEL-codes: E4 E5 F3 F4 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001010

DOI: 10.1016/j.jinteco.2023.103815

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