Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153990
Authors: 
Fratzscher, Marcel
Lo Duca, Marco
Straub, Roland
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1557
Abstract: 
The paper analyses the global spillovers of the Federal Reserve’s unconventional monetary policy measures. First, we find that Fed measures in the early phase of the crisis (QE1) were highly effective in lowering sovereign yields and raising equity markets, especially in the US relative to other countries. Fed measures since 2010 (QE2) boosted equities worldwide, while they had muted impact on yields across countries. Yet Fed policies functioned in a procyclical manner for capital flows to emerging markets (EMEs) and a counter-cyclical way for the US, triggering a portfolio rebalancing across countries out of EMEs into US equity and bond funds under QE1, and in the opposite direction under QE2. Second, the impact of Fed operations, such as Treasury and MBS purchases, on portfolio allocations and asset prices dwarfed those of Fed announcements, underlining the importance of the market repair and liquidity functions of Fed policies. Third, we find no evidence that FX or capital account policies helped countries shield themselves from these US policy spillovers, but rather that responses to Fed policies are related to country risk. The results thus illustrate how US unconventional measures have contributed to portfolio reallocation as well as a re-pricing of risk in global financial markets.
Subjects: 
Capital flows
emerging markets
Federal Reserve
monetary policy
panel data
policy responses
Portfolio Choice
quantitative easing
United States
JEL: 
E52
E58
F32
F34
G11
Document Type: 
Working Paper

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