Stephanie E. Curcuru,a Steven B. Kamin,b Canlin Li,a and Marius Rodrigueza
This paper evaluates the popular view that quantitative easing exerts greater international spillovers than conventional monetary policies. To distinguish the effects of these policies, we use a term structure model to decompose longer-term bond yields into expected short-term interest rates and term premia. We find that expected short-term interest rates have larger spillover effects than term premia on the U.S. dollar. We also find that foreign yields are at least as sensitive to U.S. short rates as to term premia, and more so for emerging market economies. All told, our findings contradict the popular view that quantitative easing (which is generally thought to work by affecting term premia) exerts greater international spillovers than conventional monetary policies (which are generally thought to work through expected rates).
JEL Code: E5, F3
a Board of Governors of the Federal Reserve System
b American Enterprise Institute