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Explaining Monetary Spillovers: The Matrix Reloaded

Jonathan Kearns, Andreas Schrimpf and Fan Dora Xia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: Using monetary policy shocks for 7 advanced economy central banks, measured at high frequency, we document the strength and characteristics of interest rate spillovers to 47 advanced and emerging market economies. Our main goal is to assess different channels through which spillovers occur and why some economies' interest rates respond more than others. We find that there is no evidence that spillovers relate to real linkages, such as trade flows. There is some indication that exchange rate regimes influence the extent of spillovers. By far the strongest determinant of interest rate spillovers is financial openness. Economies that have stronger bilateral (and aggregate) financial links with the United States or euro area are susceptible to stronger interest rate spillovers. These effects are much more pronounced at the longer end of the yield curve, indicating that while economies retain policy rate independence, financial conditions are influenced by global yields.

Keywords: monetary policy spillovers; high-frequency data; financial integration (search for similar items in EconPapers)
JEL-codes: E44 F36 F42 F65 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-opm
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Related works:
Working Paper: Explaining Monetary Spillovers: The Matrix Reloaded (2020) Downloads
Working Paper: Explaining Monetary Spillovers: The Matrix Reloaded (2018) Downloads
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