Abstract
Using a structural factor-augmented vector autoregression model and a large data set of daily time series, we study the impact of US unconventional monetary policy on British and German financial markets. Our findings indicate that a surprise US unconventional monetary policy easing leads to increased equity returns and lower government bond yields for both Germany and the United Kingdom. These effects then nearly completely dissipate after approximately 750 days.
Notes
1 See, for example, D’Amico and King (Citation2013), Doh (Citation2010), Duygan-Bump et al. (Citation2013), Fuster and Willen (Citation2010), Glick and Leduc (Citation2013), Gagnon et al. (Citation2011), Hamilton and Wu (Citation2012), Hancock and Passmore (Citation2011, Citation2012, Citation2014), Krishnamurthy and Vissing-Jorgensen (Citation2011), Swanson (Citation2011) and Swanson and Williams (Citation2014).
2 More specifically, this data set includes 2- and 10-year zero coupon US Treasuries; the 5 year and forward 5-to-10-year TIPS break-even rates; Moody’s AAA and BAA seasoned corporate bond yields; the corporate default spread (BAA–AAA), returns on the S&P500 and Dow Jones Industrial Average; the VIX index; the returns on exchange traded funds that track real estate investment trusts and homebuilders; the ABX AAA index, ABX AA index, and the ABX Risk Premium; the CMBX index; the US-Euro, US-Pound and US-Yen exchange rates; the yields on Fannie Mae mortgage backed securities (MBS); and the spread between Fannie Mae MBS yields and the 30-year Treasury. See Gabriel and Lutz (Citation2014) for more details.
3 The international data were downloaded from Bloomberg. The Bloomberg symbols are as follows: German 2-year zero coupon bonds (F91002Y); German 10-year coupon bonds (F91010Y); German stock returns (DAX); UK 2-year zero coupon bonds (I02202Y); UK 10-year coupon bonds (I02210Y); UK stock returns (UKX).
D’Amico, S. and King, T. B. (2013) Flow and stock effects of large-scale treasury purchases: evidence on the importance of local supply, Journal of Financial Economics, 108, 425–48. doi:10.1016/j.jfineco.2012.11.007 Doh, T. (2010) The efficacy of large-scale asset purchases at the zero lower bound, Federal Reserve Bank of Kansas City Economic Review, 95, 5–34. Duygan-Bump, B., Parkinson, P., Rosengren, E. et al. (2013) How effective were the Federal Reserve emergency liquidity facilities? Evidence from the asset-backed commercial paper money market mutual fund liquidity facility, The Journal of Finance, 68, 715–37. doi:10.1111/jofi.12011 Fuster, A. and Willen, P. S. (2010) $1.25 trillion is still real money: some facts about the effects of the Federal Reserve’s mortgage market investments. Technical report, Public policy Discussion Papers, Federal Reserve Bank of Boston. Glick, R. and Leduc, S. (2013) The effects of unconventional and conventional US monetary policy on the dollar, Manuscript, Federal Reserve Bank of San Francisco. Gagnon, J., Raskin, M., Remache, J. et al. (2011) The financial market effects of the Federal Reserves large-scale asset purchases, International Journal of Central Banking, 7, 3–43. Hamilton, J. D. and Wu, J. C. (2012) The effectiveness of alternative monetary policy tools in a zero lower bound environment, Journal of Money, Credit and Banking, 44, 3–46. doi:10.1111/j.1538-4616.2011.00477.x Hancock, D. and Passmore, W. (2011) Did the Federal Reserve’s MBS purchase program lower mortgage rates?, Journal of Monetary Economics, 58, 498–514. doi:10.1016/j.jmoneco.2011.05.002 Hancock, D. and Passmore, S. W. (2012) The Federal Reserve’s portfolio and its effects on mortgage markets, Unpublished Working Paper, The Federal Reserve Board. Hancock, D. and Passmore, W. (2014) How the Federal Reserve’s Large-Scale Asset Purchases (LSAPs) influence Mortgage-Backed Securities (MBS) yields and U.S. mortgage rates, Working Paper, Board of Governors of the Federal Reserve System (US). Krishnamurthy, A. and Vissing-Jorgensen, A. (2011) The effects of quantitative easing on interest rates: Channels and implications for policy, Brookings Papers on Economic Activity, 215–87. doi:10.1353/eca.2011.0019 Swanson, E. T. (2011) Let’s twist again: a high-frequency event-study analysis of operation twist and its implications for qe2, Brookings Papers on Economic Activity, 151–88. doi:10.1353/eca.2011.0006 Swanson, E. T. and Williams, J. C. (2014) Measuring the effect of the zero lower bound on medium- and longer-term interest rates, American Economic Review, 104, 3154–85. doi:10.1257/aer.104.10.3154 Gabriel, S. and Lutz, C. (2014) The impact of unconventional monetary policy on real estate markets, Working Paper. Bernanke, B. S., Boivin, J. and Eliasz, P. (2005) Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach, The Quarterly Journal of Economics, 120, 387–422. Boivin, J., Giannoni, M. P. and Mihov, I. (2009) Sticky prices and monetary policy: evidence from disaggregated us data, The American Economic Review, 99, 350–84. doi:10.1257/aer.99.1.350 Gabriel, S. and Lutz, C. (2014) The impact of unconventional monetary policy on real estate markets, Working Paper. Vargas-Silva, C. (2008) The effect of monetary policy on housing: a factor-augmented vector autoregression (FAVAR) approach, Applied Economics Letters, 15, 749–52. doi:10.1080/13504850600770947 Gupta, R., Jurgilas, M. and Kabundi, A. (2010) The effect of monetary policy on real house price growth in South Africa: a factor-augmented vectorautoregression (FAVAR) approach, Economic Modelling, 27, 315–23. doi:10.1016/j.econmod.2009.09.011 Lombardi, M. J., Osbat, C. and Schnatz, B. (2012) Global commodity cycles and linkages: a FAVAR approach, Empirical Economics, 43, 651–70. doi:10.1007/s00181-011-0494-8 Lutz, C. (2014) Unconventional monetary policy and uncertainty, Working Paper. Rigobon, R. (2003) Identification through heteroskedasticity, Review of Economics and Statistics, 85, 777–92. doi:10.1162/003465303772815727 Rigobon, R. and Sack, B. (2003) Measuring the reaction of monetary policy to the stock market, The Quarterly Journal of Economics, 118, 639–69. doi:10.1162/003355303321675473 Rigobon, R. and Sack, B. (2004) The impact of monetary policy on asset prices, Journal of Monetary Economics, 51, 1553–75. doi:10.1016/j.jmoneco.2004.02.004 Rigobon, R. and Sack, B. (2005) The effects of war risk on us financial markets, Journal of Banking and Finance, 29, 1769–89. doi:10.1016/j.jbankfin.2004.06.040 Gabriel, S. and Lutz, C. (2014) The impact of unconventional monetary policy on real estate markets, Working Paper. Lutz, C. (2014) Unconventional monetary policy and uncertainty, Working Paper.
![Sample our Economics, Finance,Business & Industry journals, sign in here to start your access, latest two full volumes FREE to you for 14 days]({"type":"image" , "src" : "/sda/5931/TOC-Subject-Sample-2021-Economics-Finance-Business-Industry.jpg"})