Discussion paper

DP12217 Monetary Policy in the Capitals of Capital

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.


Rey, H (2017), ‘DP12217 Monetary Policy in the Capitals of Capital‘, CEPR Discussion Paper No. 12217. CEPR Press, Paris & London. https://cepr.org/publications/dp12217