nep-cba New Economics Papers
on Central Banking
Issue of 2018‒12‒03
twenty-one papers chosen by
Sergey E. Pekarski
Higher School of Economics

  1. Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates By Dedola, Luca; Georgiadis, Georgios; Grab, Johannes; Mehl, Arnaud
  2. Less bang for the buck? Assessing the role of inflation uncertainty for U.S. monetary policy transmission in a data rich environment By Herwartz, Helmut; Rohloff, Hannes
  3. The stabilizing role of forward guidance: A macro experiment By Ahrens, Steffen; Lustenhouwer, Joep; Tettamanzi, Michele
  4. Measuring Uncertainty of Optimal Simple Monetary Policy Rules in DSGE models By Górajski Mariusz; Kuchta Zbigniew
  5. The Financial and Macroeconomic Effects of SMP, LTRO and OMT Announcements By Gifuni, Luigi
  6. Explaining Monetary Spillovers: The Matrix Reloaded By Jonathan Kearns; Andreas Schrimpf; Dora Xia
  7. A monetary policy framework for the European Central Bank to deal with uncertainty By Grégory Claeys; Maria Demertzis; Jan Mazza
  8. Quantitative easing By Cui, Wei; Sterk, Vincent
  9. The Missing Link: Monetary policy and the labor share By Cristiano Cantore; Filippo Ferroni; Miguel A. Leon-Ledesma
  10. Can Monetary Policy Lean against Housing Bubbles? By Christophe André; Petre Caraiani; Adrian Cantemir Čalin; Rangan Gupta
  11. Monetary Rules, Determinacy and Limited Enforcement By Jean Barthélemy; Eric Mengus
  12. A Textual Analysis of the Bank of England Growth Forecasts By Jacob T. Jones; Tara M. Sinclair; Herman O. Stekler
  13. Measuring the Natural Rates of Interest in Germany and Italy By Bystrov Victor
  14. Effects of monetary policy decisions on professional forecasters’ expectations and expectations uncertainty By Oinonen, Sami; Paloviita, Maritta; Viren, Matti
  15. The leverage ratio, risk-taking and bank stability By Acosta-Smith, Jonathan; Grill, Michael; Lang, Jan Hannes
  16. The growing impact of US monetary policy on emerging financial markets: Evidence from India By Lakdawala, Aeimit
  17. Spillovers from US monetary policy: Evidence from a time-varying parameter GVAR model By Crespo Cuaresma, Jesus; Doppelhofer, Gernot; Feldkircher, Martin; Huber, Florian
  18. Sparse Restricted Perception Equilibrium By Volha Audzei; Sergey Slobodyan
  19. The dynamic impact of monetary policy on regional housing prices in the United States By Fischer, Manfred M.; Huber, Florian; Pfarrhofer, Michael; Staufer-Steinnocher, Petra
  20. A Note on Krugman's Liquidity Trap By Stefano Di Bucchianico
  21. Impact of the ECB Quantitative Easing on the French International Investment Position By Rafael Cezar; Maéva Silvestrini

  1. By: Dedola, Luca (European Central Bank); Georgiadis, Georgios (European Central Bank); Grab, Johannes (European Central Bank); Mehl, Arnaud (European Central Bank)
    Abstract: We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-á-vis the US dollar by 12%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
    Keywords: Quantitative easing; interest rate parity condition; CIP deviations
    JEL: E5 F3
    Date: 2018–11–02
  2. By: Herwartz, Helmut; Rohloff, Hannes
    Abstract: We investigate the relationship between inflation uncertainty and monetary policy transmission in the U.S. economy. Monetary policy shocks are identified within the framework of nonlinear structural factor-augmented VARs which allow us to analyze several complementary hypotheses connecting IU with reduced monetary policy effectiveness. We find that the real effects of monetary policy shocks are markedly dampened conditional on high IU. This can be traced back to, inter alia, real-option and precautionary savings effects which distort the traditional interest rate channel. Moreover, policy transmission through the external finance premium and the term structure of interest rates appears strongly dependent on inflation uncertainty and contributes to the reduced policy effectiveness.
    Keywords: inflation uncertainty,SVAR,monetary policy,sign restrictions,asset prices,smoothtransition
    JEL: C32 E44 E52
    Date: 2018
  3. By: Ahrens, Steffen; Lustenhouwer, Joep; Tettamanzi, Michele
    Abstract: Expectations are among the main driving forces for economic dynamics. Therefore, managing expectations has become a primary objective for monetary policy seeking to stabilize the business cycle. In this paper, we study whether central banks can manage market expectations by means of forward guidance in a New Keynesian learning-to-forecast experiment. Forward guidance takes the form of one-period ahead inflation projections that are published by the central bank in each period. Subjects in the experiment observe these projections along with the historic development of the economy and subsequently submit their own one-period ahead inflation forecasts. In this context, we find that the central bank can significantly manage market expectations through forward guidance and that this management strongly supports monetary policy in stabilizing the economy. Moreover, forward guidance drastically reduces the probability of a deflationary spiral after strong negative shocks to the economy.
    Keywords: learning-to-forecast experiment,forward guidance,heterogeneous expectations
    JEL: C92 E32 E37 E58
    Date: 2018
  4. By: Górajski Mariusz (Faculty of Economics and Sociology, University of Lodz); Kuchta Zbigniew (Faculty of Economics and Sociology, University of Lodz)
    Abstract: This paper presents a new approach to measure the parameter uncertainty for optimal simple monetary policy rules in the New Keynesian dynamic stochastic general equilibrium models. More precisely, we propose a new algorithm which enables to directly introduce parameter uncertainty into the optimal simple precommitment rule problem. As a result we find distributions of the optimal monetary policy reactions and the minimized welfare losses. To compare the distributions of the monetary policy parameters and the welfare losses we apply the first order stochastic dominance ordering (SD1). The SD1 inequality between the probability distribution is verified by means of the Kolmogorov-Smirnov test. The proposed algorithms are applied to the Erceg, Henderson and Levine (2000) small-scale closed economy model estimated for the Polish economy. For the welfare-loss-minimizing central bank, we examine three types of the dynamic specification of its policy rule: backward-, current- and forward-looking. Finally, for a given set of optimal and implementable monetary policy rules, we show that the fully specified forward-looking monetary policy rule with interest rate smoothing mechanism minimizes the welfare-loss in the sense of the stochastic ordering SD1.
    Keywords: optimal monetary policy, DSGE, uncertainty
    JEL: E47 E52
    Date: 2018–10–15
  5. By: Gifuni, Luigi
    Abstract: The term Non-Conventional Monetary Policies refers to the Central Banks and indicates the possibility that they may implement policies of extraordinary nature. The motivation behind such a move may lie in the fact that conventional policies have temporarily lost their effectiveness. The events of the financial crisis of 2007 – 2009 are a good example to explain the use of an unconventional approach by the Central Banks. Previously, the monetary policies of many countries seemed to follow the Taylor rule, according to which the Central Banks (in reference to an inflation target) varied the nominal interest rate in response to changes in inflation and GDP. The financial crisis of 2007 has led the Monetary Authorities of the major countries to no longer consider the conventional criteria on which they had always based their interventions, pushing them towards these exceptional measures. This study evaluates the macroeconomic effects of three different Non-Conventional Monetary Policies in the financial and bond markets. Securities Market Programme (SMP), Long Term Refinancing Operation (LTRO) and Outright Monetary Transaction (OMT) represent the announcements of the European Central Bank (ECB) that have been evaluated. This paper will argue that the markets examined (France, Germany, Spain and Italy) have shown significant growth in terms of real activity, credit and prices, for the SMP and OMT announcement, whereas LTRO has displayed relatively muted results.
    Keywords: Securities Market Programme, Long Term Refinancing Operation, Outright Monetary Transaction, event study.
    JEL: C12 E52 E58
    Date: 2017–11–05
  6. By: Jonathan Kearns; Andreas Schrimpf; Dora Xia
    Abstract: This paper examines whether euro area unconventional monetary policies have affected the loss-absorbing buffers (that is the resilience) of the banking industry. We employ various measures to capture the effect of the broad array of programmes used by the ECB to implement balance sheet policies, while we control for the effect of conventional and negative (or very low) interest rate policy. The results suggest that, above and away from the zero-lower bound, looser interest rate policy tends to weaken our measure of euro area banks' loss-absorbing buffers. On the contrary, further lowering interest rates near and below the zero lower bound seems to strengthen (or weaken less) such buffers, which points towards non-linearities arising in the vicinity of the lower bound. Moreover, balance sheet easing policies enhance bank level resilience overall. However, unconventional monetary policies seem to have increased the fragility of banks in the member states hardest hit by the 2011 sovereign debt crisis. In fact, the evidence presented in this paper suggest that the resilience gains of unconventional monetary policies have accrued mostly to banks headquartered in the so-called core euro area countries (Austria, Belgium, Finland, France, Germany, Luxembourg and Netherlands). Finally, unconventional monetary policies seem to have enhanced more the resilience of banks that were relatively stronger, i.e. that were in the higher deciles of the distribution of loss-absorbing buffers.
    Keywords: monetary policy spillovers, high-frequency data, financial integration
    JEL: E44 F36 F42
    Date: 2018–11
  7. By: Grégory Claeys; Maria Demertzis; Jan Mazza
    Abstract: This Policy Contribution was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue of 26 November 2018 between ECON and the President of the European Central Bank. The original paper is available on the European Parliament’s webpage (here). Copyright remains with the European Parliament at all times. Central banks face new challenges. First, the potential long-term decline in neutral rates of interest in advanced economies could reduce the space for central banks to make policy-rate cuts. Second, the potential flattening of the Phillips curve (i.e. the weakening of the relationship between inflation and unemployment) in recent decades could reduce the ability of central banks to reach their inflation targets. Third, the discussion on whether central banks should also target financial stability has re-emerged as a result of the crisis. Fourth, the euro-area architectural framework remains incomplete. The problematic interaction between nineteen different fiscal policies and a common monetary policy, the lack of a stabilisation tool and differences in national macro-prudential frameworks would all suggest significant reforms are needed in these realms to strengthen the overall resilience of the system. However, the probability of seeing material changes before the next recession is relatively low, thus presumably leaving the European Central Bank’s pivotal role unchanged. More generally, fundamental uncertainty surrounding concepts at the core of the economy, and therefore demand management, has emerged. Monetary policy has to navigate without full knowledge of what the post-crisis ‘new normal’ is going to be. In light of these considerations, we recommend that the ECB should update its definition of price stability to target core inflation around two percent per year (allowing a tolerance band on either side of the two percent target), on average, over a longer time horizon. Compared to other proposals (such as increasing the targeted inflation level or price-level targeting), our recommendation has the advantage of not departing drastically from the current inflation target and is therefore easier to communicate. In our view, monetary policy should not target financial stability. Other more targeted (and country-specific) tools should be deployed to avoid the build-up of financial stability risks. Closer coordination with national macroprudential authorities and greater harmonisation in the use of macroprudential policies are however strongly recommended, as it is now acknowledged that financial and monetary policies are closely interlinked.
    Date: 2018–11
  8. By: Cui, Wei; Sterk, Vincent
    Abstract: Is Quantitative Easing (QE) an effective substitute for conventional monetary policy? We study this question using a quantitative heterogeneous-agents model with nominal rigidities, as well as liquid and partially liquid wealth. The direct effect of QE on aggregate demand is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to the model and empirical studies. A comparison of optimal QE and interest rate rules reveals that QE is indeed a very powerful instrument to anchor expectations and to stabilize output and inflation. However, QE interventions come with strong side effects on inequality, which can substantially lower social welfare. A very simple QE rule, which we refer to as Real Reserve Targeting, is approximately optimal from a welfare perspective when conventional policy is unavailable. We further estimate the model on U.S. data and find that QE interventions greatly mitigated the decline in output during the Great Recession.
    Keywords: monetary policy; large-scale asset purchases; HANK
    JEL: E21 E30 E50 E58
    Date: 2018–11–16
  9. By: Cristiano Cantore (Bank of England; Centre for Macroeconomics (CFM); University of Surrey); Filippo Ferroni (Federal Reserve Bank of Chicago); Miguel A. Leon-Ledesma (University of Kent)
    Abstract: The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with a wide variety of NK models commonly used for monetary policy analysis and where the direct link between the labor share and the markup can be broken down.
    Keywords: Labor share, Monetary policy shocks, DSGE models
    JEL: E23 E32 C52
    Date: 2018–11
  10. By: Christophe André (Organisation for Economic Co-operation and Development (OECD)); Petre Caraiani (Institute for Economic Forecasting, Romanian Academy); Adrian Cantemir Čalin (Institute for Economic Forecasting, Romanian Academy); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper investigates whether the counter-intuitive result of Gali and Gambetti (2015), where stock prices react positively to a monetary tightening, also holds for housing prices. Estimating a Bayesian VAR model based on an asset-pricing framework and allowing for rational bubbles for the United States, the United Kingdom and Canada, we find that housing prices respond negatively to a monetary policy shock, as common intuition would suggest. We also show, using a Markov Switching VAR model for the United States, that the response of housing prices to a monetary policy shock is not sensitive to the state of homebuyers sentiment. Hence, monetary policy can prove effective in fighting housing price bubbles. However, “leaning against the wind" has costs in terms of lost output while inflation becomes lower. Hence, before implementing such a policy, its relative efficiency and interactions with other policies, notably macro-prudential, need to be carefully considered.
    Keywords: housing, bubbles, VAR, monetary policy
    Date: 2018–11
  11. By: Jean Barthélemy; Eric Mengus
    Abstract: This paper investigates the ability of monetary policy rules to coordinate private agents' expectations when the enforcement of rules is limited. We show that limited enforcement precludes diverging inflation paths ensuring that nominal variables remain bounded in equilibrium. When applied to Taylor rules this makes the Taylor principle necessary and sufficient for price determinacy. However, limited enforcement also allows agents to rationally anticipate multiple policies and we show that, in general, there is no policy rule able to recoordinate any private agents' belief on that rule. We finally provide conditions under which such recoordination may take place.
    Keywords: Policy Rules, Determinacy, Limited Enforcement.
    JEL: E31 E52 E65
    Date: 2018
  12. By: Jacob T. Jones (The George Washington University); Tara M. Sinclair (The George Washington University); Herman O. Stekler (The George Washington University)
    Abstract: The Bank of England publishes a quarterly Inflation Report (IR) that provides numerical forecasts and text discussion of their assessment of the UK economy. Previous research has evaluated the quantitative forecasts included in the IR, but we focus on the qualitative discussion of output growth. We use a textual analysis procedure to convert the qualitative assessments made by the Bank into quantitative scores. We compare these scores to real-time output growth data as well as to the corresponding quantitative projections published by the Bank. We find that overall developments in the UK economy were accurately represented in the text of the IR. Although the Bank failed to forecast the onset of the Great Recession ahead of time, they did perceive underlying weakness in the economy prior to the downturn, which was more clearly communicated in the text than in the quantitative forecasts.
    Keywords: Macroeconomic Forecast Evaluation, Qualitative Forecasting, Great Recession
    JEL: C53 E37 E58
    Date: 2018–11
  13. By: Bystrov Victor (Faculty of Economics and Sociology, University of Lodz)
    Abstract: In this paper a semi-structural econometric model is implemented in order to estimate the natural rates of interest in two large economies of the Euro Area: Germany an Italy. The estimates suggest that after the financial crisis of 2007-2008 a decrease of the growth rate of potential output and the corresponding natural rate of interest was greater in Italy than in Germany which could have had important implications for the effectiveness of a common monetary policy. Unlike in other studies, it is found that the monetary policy stance was less expansionary in Italy as compared to Germany for the whole after-crisis period.
    Keywords: natural rate of interest, potential output, euro area, state-space model, Kalman filter
    JEL: C32 C51 E43 E52
    Date: 2018–10–22
  14. By: Oinonen, Sami; Paloviita, Maritta; Viren, Matti
    Abstract: In this paper, we examine how professional forecasters’ expectations and expectation uncertainty have reacted to the ECB’s interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters’ reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters’ reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.
    JEL: E32 G02
    Date: 2018–11–20
  15. By: Acosta-Smith, Jonathan (Bank of England); Grill, Michael (European Central Bank); Lang, Jan Hannes (European Central Bank)
    Abstract: This paper addresses the trade-off between additional loss-absorbing capacity and potentially higher bank risk-taking associated with the introduction of the Basel III leverage ratio. This is addressed in both a theoretical and empirical setting. Using a theoretical micro model, we show that a leverage ratio requirement can incentivise banks that are bound by it to increase their risk-taking. This increase in risk-taking however, should be more than outweighed by the benefits of higher capital, thereby leading to more stable banks. These theoretical predictions are tested and confirmed in an empirical analysis on a large sample of EU banks. Our baseline empirical model suggests that a leverage ratio requirement would lead to a significant decline in the distress probability of highly leveraged banks.
    Keywords: Bank capital; risk-taking; leverage ratio; Basel III
    JEL: G01 G21 G28
    Date: 2018–09–14
  16. By: Lakdawala, Aeimit (Michigan State University, Department of Economics)
    Abstract: Much research has been devoted to studying the international spillover effects of US monetary policy. However, a lot of the focus has been on the recent unconventional monetary policies undertaken by the Federal Reserve. Combining high frequency financial market data with a time-varying parameter approach we show that US monetary policy decisions have had significant effects on the Indian stock markets well before the use of unconventional policy tools and that these effects have gotten stronger over time. In addition to the conventional channel of surprise changes in the policy rate, we find that US monetary shocks are also transmitted through an uncertainty channel, which is especially important for announcements about large scale asset purchases (quantitative easing). Using firm level stock prices, we also show that the higher sensitivity of the aggregate response is uniform across the stock market and is not driven by the increased exposure of any specific industry to US monetary policy. Instead, our results suggest that it is driven by the portfolio decisions of foreign institutional investors and the exchange rate becoming more sensitive to US monetary policy.
    Keywords: Monetary Policy Shocks; Emerging Stock Markets; Foreign Institutional Investors; Quantitative Easing; Monetary Policy Uncertainty
    JEL: E52 F30 F36 G12 G14
    Date: 2018–10–01
  17. By: Crespo Cuaresma, Jesus (WU Wirtschaftsuniversität Wien); Doppelhofer, Gernot (Norwegian School of Economics); Feldkircher, Martin (Oesterreichische Nationalbank (Austrian Central Bank)); Huber, Florian (University of Salzburg)
    Abstract: This paper develops a global vector autoregressive (GVAR) model with time-varying parameters and stochastic volatility to analyze whether international spillovers of US monetary policy have changed over time. The proposed model allows assessing whether coefficients evolve gradually over time or are better characterized by infrequent, but large breaks. Our findings point towards pronounced changes in the international transmission of US monetary policy throughout the sample period, especially so for the reaction of international output, equity prices, and exchange rates against the US dollar. In general, the strength of spillovers has weakened in the aftermath of the global financial crisis. Using simple panel regressions, we link the variation in international responses to measures of trade and financial globalization. We find that a broad trade base and a high degree of financial integration with the world economy tend to cushion risks stemming from a foreign shock such as a US monetary policy tightening, whereas a reduction in trade barriers and/or a liberalization of the capital account increase these risks.
    Keywords: Spillovers; zero lower bound; globalization; mixture innovation models
    JEL: C30 E52 F41
    Date: 2018–11–16
  18. By: Volha Audzei; Sergey Slobodyan
    Abstract: In this paper we study model selection under bounded rationality and the impact of monetary policy on the equilibrium choice of forecasting models. We use the concept of sparse rationality (developed recently by Gabaix, 2014), where paying attention to all possible variables is costly and agents can choose to over- or under-emphasize particular variables, even fully excluding some of them. Our main question is whether an initially mis-specified equilibrium (the restricted perceptions equilibrium, or RPE) is compatible with the equilibrium choice of sparse weights describing the allocation of attention to different variables by the agents inhabiting this RPE. In a simple New Keynesian model, we find that the agents stick to their initial mis-specified AR(1) forecasting model choice when monetary policy is less aggressive or inflation is more persistent. We also identify a region in the parameter space where the agents find it advantageous to pay attention to no variable at all.
    Keywords: Bounded rationality, expectations, learning, model selection
    JEL: D84 E31 E37
    Date: 2018–09
  19. By: Fischer, Manfred M.; Huber, Florian; Pfarrhofer, Michael; Staufer-Steinnocher, Petra
    Abstract: This paper uses a factor-augmented vector autoregressive model to examine the impact of monetary policy shocks on housing prices across metropolitan and micropolitan regions. To simultaneously estimate the model parameters and unobserved factors we rely on Bayesian estimation and inference. Policy shocks are identified using high-frequency suprises around policy announcements as an external instrument. Impulse reponse functions reveal differences in regional housing price responses, which in some cases are substantial. The heterogeneity in policy responses is found to be significantly related to local regulatory environments and housing supply elasticities. Moreover, housing prices responses tend to be similar within states and adjacent regions in neighboring states.
    Keywords: Regional housing prices, metropolitan and micropolitan regions, factor-augmented vector autoregressive model, Bayesian estimation, high-frequency identification
    Date: 2018–11–16
  20. By: Stefano Di Bucchianico (Department of Economics, Roma Tre University)
    Abstract: The 1998 stylized model of Krugman constituted a ground-breaking contribution explaining the long lasting Japanese stagnation as the consequence of a ‘liquidity trap’ situation featuring a negative natural interest rate. Our critique to such a proposal will focus on three aspects. First, we will question the logical structure of the model, providing an alternative interpretation of its closure. Second, we will argue that aggregate demand has no role in the explanation, as the cause for the persistent excess of savings over desired investment is the result of a supply side shock plus a financial rigidity on the nominal interest rate. Finally, we will discuss the restrictive assumptions needed to get a negative natural interest rate, the concept that lies at the foundation of the entire theoretical apparatus. Our conclusion is that the explanation offered within the 1998 contribution does not provide a satisfying rationale for the Japanese stagnation.
    Keywords: Liquidity trap, Japanese stagnation, natural interest rate
    JEL: E31 E40 E52 E58
    Date: 2018
  21. By: Rafael Cezar; Maéva Silvestrini
    Abstract: This paper aims at estimating the impact of the recent Asset Purchase Programs implemented by the ECB - known as Quantitative easing (QE) - on external assets and liabilities recorded in one economy’s International Investment Position (IIP). Our analysis focused on the case of France. We start by describing the recent evolution of the four main items constituting the French IIP; namely Portfolio Investments, Other Investments, Derivatives and Direct Investments. We observe ample, albeit temporary, variations of these items surrounding QE programs. This analysis is complemented by an econometric approach in which we consider as QE variables both the announcements of the programs and their actual implementation. QE measures do impact all the items of the French IIP. Announcements –and particularly the one of January 2015– play a stronger role compared to the amounts purchased. We also decompose changes in the IIP into flows and valuation effects and show that the latter is the most reactive to QE measures. Finally, we establish counterfactual scenarios to quantify what France’s IIP would have been in the absence of QE. The strong impact observed following the announcement of January 2015 is rapidly counterbalanced; which suggests an over-adjustment phenomenon at the beginning of the program. This analysis allows estimating the outcome of the policy on the net IIP and thus on international wealth transfer. Consistently with our previous findings, we observe a robust impact at the beginning of the program which is then partly offset.
    Keywords: Monetary policy, Quantitative Easing, Balance of payments, International investment position.
    JEL: E52 F32 G15
    Date: 2018

This nep-cba issue is ©2018 by Sergey E. Pekarski. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.