The International Impacts of Federal Reserve Unconventional Monetary Policy

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Frerichs, Benjamin Stolte
Monetary Policy
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The U.S. Federal Reserve's unconventional monetary policies during the Great Recession had significant impacts on international long-term bond yields. International economies were impacted by Fed Quantitative Easing (QE) announcements through expectation and substitution effects. I found that a Fed QE1 announcement was associated with a four to ten basis point drop in long-term bond yields for countries with a similar credit rating to the U.S. Across all QE announcements I found a smaller effect of a one to three basis point drop in international yields. The paper also provides evidence that economic integration had a significant impact on the response of a country to Fed QE announcements. These findings suggest that Fed unconventional monetary policy was effective in moving both domestic and international long-term interest rates.