Research

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International Spillovers of New Monetary Policy

Dennnis Nsafoah and Aamir Rafique Hashmi

Abstract
We study spillovers of conventional and new monetary policies of a large economy to a small open economy (SOE). Building on Sims and Wu (“Evaluating Central Banks’ Tool Kit: Past, Present and Future,” 2020, forthcoming in the Journal of Monetary Economics), we employ a medium-scale New Keynesian model that features all the major types of new monetary policies and the conventional monetary policy in a unified framework. We extend their model to an open economy setting. We use our model as a measurement device to quantify the spillovers and study the economic mechanisms behind them. In our quantitative application, Canada is the SOE and the US is the large economy. Our results show similar spillover effects of conventional and new monetary policies on GDP of the SOE. However, the effects on various components of GDP (consumption, investment and net exports) differ by policy. We also simulate counterfactual monetary policy scenarios for the US and Canada around the Great Recession of 2008. Three main conclusions emerge from these simulations:
(1) if the Fed had not engaged in quantitative easing (QE), the US recession in the wake of the 2008 financial crisis would have been deeper but Canada would have had better economic outcomes; (2) there are diminishing returns to QE in terms of its effects on both the US and Canadian real variables; and (3) had the Bank of Canada followed the Fed and engaged in QE of its own during the Great Recession, the real economic outcomes would have been better for Canada.

Publications

International Monetary Policy Spillovers

Dennis Nsafoah and Apostolos Serletis

Abstract
This paper explores for spillovers from monetary policy in the United States to a number of advanced countries, namely Canada, Denmark, the Eurozone, Japan, Sweden, Switzerland, and the United Kingdom. We use monthly data, from January 1997 to December 2017, and a bivariate structural GARCH-in-Mean VAR to investigate the effects of positive and negative U.S. monetary policy shocks, and also whether monetary policy uncertainty in the United States has had statistically significant spillover effects on each of the other advanced countries. Our evidence suggests that positive (negative) U.S. monetary policy shocks increase (reduce) the policy rate in each of the other countries, and that monetary policy uncertainty in the United States has a negative and statistically significant effect on the monetary policy rate of each of the other countries.

Open Economies Review volume 30, pages87–104(2019)

Monetary Policy and Interest Rate Spreads

Dennis Nsafoah and Apostolos Serletis

Abstract
This paper investigates the effects of monetary policy shocks and uncertainty about monetary policy on key macroeconomic variables and interest rate spreads — the term spread and credit spread. We use monthly data for the United States and a multivariate structural GARCH-in-Mean VAR model to estimate the effects on the growth rate of real output, the inflation rate, term spread, credit spread, and the policy rate. We find statistically significant effects on all economic and financial variables.

Open Economies Review volume 31, pages707–727(2020)