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Monetary policy transmission in systemically important economies and China’s impact

Domenico Lombardi, Pierre Siklos () and Xiangyou Xie

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper examines the monetary policy transmission mechanism in four systemically important economies. The impact of monetary policy is found to be broadly comparable for China, the US, the Eurozone, and Japan. Identifying a role for the financial sector is essential to unpacking various channels through which monetary policy operates. Global factors play a significant role and their impact is strongest for China and weakest for Japan. China’s impact is significant with the Eurozone displaying the most interdependence and Japan the least. Time-varying VARs suggest that contrasts in the responses to monetary policy shocks persist highlighting some of the remaining differences in the transmission mechanism. Finally, there is no apparent structural change in the estimated relationships around the time when the Fed intervened after 2008. It is conjectured that Quantitative Easing may well have prevented such a break.

Keywords: monetary policy transmission; systemically important economies; QE; Factor VAR; time-varying Factor VAR (search for similar items in EconPapers)
JEL-codes: E63 E52 E58 E32 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac and nep-mon
Date: 2018-10
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-50

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