Monetary Policy Across Space and Time

Laura Liu, Christian Matthes and Katerina Petrova

A chapter in Essays in Honour of Fabio Canova, 2022, vol. 44B, pp 37-64 from Emerald Group Publishing Limited

Abstract: In this chapter, the authors ask two questions: (i) Is the conduct of monetary policy stable across time and similar across major economies? and (ii) Do policy decisions of major central banks have international spillover effects? To address these questions, the authors build on recent semi-parametric advances in time-varying parameter models that allow us to increase the vector autoregressive () dimension and to jointly model three advanced economies (USA, UK and the Euro Area). The main reduced-form finding of this chapter is an increased connectedness between and within countries during the recent financial crisis. In order to study policy spillovers, we jointly identify three economy-specific monetary policy shocks using a combination of sign and magnitude restrictions. The authors find that monetary policy shocks were larger in magnitude and more persistent in the early 1980s than in subsequent periods. The authors also uncover positive spillover effects of policy between countries in the 1980s and diminished, and sometimes negative ‘beggar-thy-neighbour’ effects in the second half of the sample. Moreover, during the 1980s, the authors find evidence for policy coordination between the Federal Reserve, the Bank of England and the European Central Bank.

Keywords: Monetary policy spillovers; time-varying parameters; changing volatility; multi-country VAR; C54; E30; E58 (search for similar items in EconPapers)
Date: 2022
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Related works:
Journal Article: Monetary Policy across Space and Time (2019)
Working Paper: Monetary Policy across Space and Time (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-90532022000044b002

DOI: 10.1108/S0731-90532022000044B002

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