On the international spillovers of US quantitative easing

Marcel Fratzscher, Roland Straub and Marco Lo Duca

No 1557, Working Paper Series from European Central Bank

Abstract: The paper analyses the global spillovers of the Federal Reserve’s unconventional monetary policy measures. First, we find that Fed measures in the early phase of the crisis (QE1) were highly effective in lowering sovereign yields and raising equity markets, especially in the US relative to other countries. Fed measures since 2010 (QE2) boosted equities worldwide, while they had muted impact on yields across countries. Yet Fed policies functioned in a procyclical manner for capital flows to emerging markets (EMEs) and a counter-cyclical way for the US, triggering a portfolio rebalancing across countries out of EMEs into US equity and bond funds under QE1, and in the opposite direction under QE2. Second, the impact of Fed operations, such as Treasury and MBS purchases, on portfolio allocations and asset prices dwarfed those of Fed announcements, underlining the importance of the market repair and liquidity functions of Fed policies. Third, we find no evidence that FX or capital account policies helped countries shield themselves from these US policy spillovers, but rather that responses to Fed policies are related to country risk. The results thus illustrate how US unconventional measures have contributed to portfolio reallocation as well as a re-pricing of risk in global financial markets. JEL Classification: E52, E58, F32, F34, G11

Keywords: capital flows; emerging markets; Federal Reserve; monetary policy; Panel data; policy responses; portfolio choice; quantitative easing; United States (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-opm
Note: 335955
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Citations: View citations in EconPapers (143)

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Related works:
Journal Article: On the International Spillovers of US Quantitative Easing (2018)
Working Paper: On the International Spillovers of US Quantitative Easing (2015)
Working Paper: On the International Spillovers of US Quantitative Easing (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20131557

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