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Did quantitative easing affect interest rates outside the US? New evidence based on interest rate differentials. CEPS Working Document No. 416/January 2016

Belke, Ansgar and Gros, Daniel. (2016) Did quantitative easing affect interest rates outside the US? New evidence based on interest rate differentials. CEPS Working Document No. 416/January 2016. [Working Paper]

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    Abstract

    This paper explores the effects of non-standard monetary policies on international yield relationships. Based on a descriptive analysis of international long-term yields, we find evidence that long-term rates followed a global downward trend prior to as well as during the financial crisis. Comparing interest rate developments in the US and the eurozone, it is difficult to detect a distinct impact of the first round of the Fed’s quantitative easing programme (QE1) on US interest rates for which the global environment – the global downward trend in interest rates – does not account. Motivated by these findings, we analyse the impact of the Fed’s QE1 programme on the stability of the US-euro long-term interest rate relationship by using a CVAR (cointegrated vector autoregressive) model and, in particular, recursive estimation methods. Using data gathered between 2002 and 2014, we find limited evidence that QE1 caused the break-up or destabilised the transatlantic interest rate relationship. Taking global interest rate developments into account, we thus find no significant evidence that QE had any independent, distinct impact on US interest rates.

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    Item Type: Working Paper
    Uncontrolled Keywords: quantitative easing, unconventional monetary policies, time series econometrics, Cointegrated VAR (CVAR), recursive methods
    Subjects for non-EU documents: EU policies and themes > External relations > EU-US
    EU policies and themes > Policies & related activities > economic and financial affairs > monetary policy
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 27 Jan 2016 12:16
    Number of Pages: 38
    Last Modified: 27 Jan 2016 12:52
    URI: http://aei.pitt.edu/id/eprint/71011

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