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International Transmission of Quantitative Easing Policies: Evidence from Canada

Serdar Kabaca and Kerem Tuzcuoglu

Staff Working Papers from Bank of Canada

Abstract: What are the cross-border spillovers from major economies’ quantitative easing (QE) policies to their trading partners? We provide evidence by concentrating on spillovers from the US to Canada during the zero lower bound period when QE policies were actively used. We identify QE shocks in the US and estimate their impact on a large number of Canadian macroeconomic and financial variables. We then analyze transmission channels of foreign QE shocks to the domestic economy. Our results suggest that US QE shocks are expansionary for Canada despite a currency appreciation. This is because they spill over to domestic borrowing costs, lowering long-term rates as well as financial premiums, and increasing asset prices. We find evidence for both portfolio balance and risk channels.

Keywords: Business fluctuations and cycles; International topics; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E52 F41 F44 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2022-06
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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