Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/123751 
Year of Publication: 
2015
Series/Report no.: 
Bank of Canada Working Paper No. 2015-2
Publisher: 
Bank of Canada, Ottawa
Abstract: 
This paper evaluates the international spillover effects of large-scale asset purchases (LSAPs) using a two-country dynamic stochastic general-equilibrium model with nominal and real rigidities, and portfolio balance effects. Portfolio balance effects arise from imperfect substitution between short- and long-term bond portfolios in each country, as well as between domestic and foreign bonds within these portfolios. We show that LSAPs lower both domestic and foreign long-term yields, and stimulate economic activity in both countries. International spillover effects become larger as the steady-state share of long-term U.S. bond holdings increases in the rest-of-the-world portfolio, as the elasticity of substitution between short- and long-term bonds decreases, or as the elasticity of substitution between domestic and foreign bonds increases. We also find that U.S. asset purchases that generate the same output effect as U.S. conventional monetary policy have larger international spillover effects. This is because portfolio balance effects appear to be stronger under unconventional policy, and foreigners' U.S. bond holdings are heavily weighted toward long-term bonds.
Subjects: 
International topics
Transmission of monetary policy
Economic models
JEL: 
E52
F411
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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