DP15006 Explaining Monetary Spillovers: The Matrix Reloaded

Author(s): Jonathan Kearns, Andreas Schrimpf, Fan Dora Xia
Publication Date: July 2020
Keyword(s): Financial Integration, high-frequency data, monetary policy spillovers
JEL(s): E44, F36, F42, F65
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=15006

This paper relies on a high-frequency identification approach to provide new insights into monetary policy spillovers by major central banks. Our long and broad sample (1999-2019, from four major economies to 47 advanced and emerging market economies) allows us to accurately identify the properties of spillovers and to shed light on different transmission channels. We find that spillovers by the Fed to foreign interest rates are large, but more surprisingly, document an intensification of spillovers by the ECB over time. Spillovers are more significant to bond yields in advanced economies than they are to those in emerging markets. Differentiating across key spillover channels, we find strongest support for a financial links channel, but weaker evidence for the macroeconomic links channel and FX regime channel.