DP12217 Monetary Policy in the Capitals of Capital

Author(s): Elena Gerko, Hélène Rey
Publication Date: August 2017
Keyword(s): high frequency identification, international financial spillovers, monetary policy
JEL(s): E4, E52, E58, F41, F6, G15
Programme Areas: Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12217

The importance of financial markets and international capital flows has increased greatly since the 1990s. How does this affect the effectiveness of monetary policy? We analyse the transmission of monetary policy in two important financial centres, the United States and the United Kingdom. Studying the responses of mortgage and corporate spreads, we find evidence in favour of an important financial channel in both countries. Our identification strategy allows us to study effects of the policy rate and of forward guidance, broadly defined. We also analyse international financial spillovers, which we find to be asymmetric.