2016
DOI: 10.5089/9781475543056.001
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U.S. Monetary Policy Normalization and Global Interest Rates

Abstract: As the Federal Reserve continues to normalize its monetary policy, this paper studies the impact of U.S. interest rates on rates in other countries. We find a modest but nontrivial pass-through from U.S. to domestic short-term interest rates on average. We show that, to a large extent, this comovement reflects synchronized business cycles. However, there is important heterogeneity across countries, and we find evidence of limited monetary autonomy in some cases. The co-movement of longer term interest rates is… Show more

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Cited by 22 publications
(16 citation statements)
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“…The 100 basis point reduction in the interest rate might not seem to be a realistic description of the response of the Fed to the crisis: the interest rate was driven all the way to zero, and the Fed has indicated that it will pursue the zero rate interest policy for a long time. Caceres, Carrière-Swallow, Demir, and Gruss (2016) find that the response of the foreign interest rate to a 100 basis point change in the U.S. federal funds rate under a fully flexible regime is indistinguishable from zero. Figure 1 shows the actual Fed funds rate and the interest rate implied by the Taylor rule, using the same parameters as in the simulations.…”
Section: Parameter Valuesmentioning
confidence: 81%
See 1 more Smart Citation
“…The 100 basis point reduction in the interest rate might not seem to be a realistic description of the response of the Fed to the crisis: the interest rate was driven all the way to zero, and the Fed has indicated that it will pursue the zero rate interest policy for a long time. Caceres, Carrière-Swallow, Demir, and Gruss (2016) find that the response of the foreign interest rate to a 100 basis point change in the U.S. federal funds rate under a fully flexible regime is indistinguishable from zero. Figure 1 shows the actual Fed funds rate and the interest rate implied by the Taylor rule, using the same parameters as in the simulations.…”
Section: Parameter Valuesmentioning
confidence: 81%
“…However, it shows also that the Figure 2f shows the response of the dollar bloc's interest rate is in practise zero. Caceres, Carrière-Swallow, Demir, and Gruss (2016) find that the response of the foreign interest rate to a 100 basis point change in the U.S. federal funds rate under a fully flexible regime is indistinguishable from zero. Figure 2c demonstrates that a U.S. interest rate reduction depreciates the nominal exchange rate.…”
Section: Parameter Valuesmentioning
confidence: 81%
“…Research has also found significant spillovers, both positive and negative, from quantitative easing in Japan (Ganelli & Tawk, ), from quantitative easing in Europe (IMF, ) and from quantitative easing in the United Kingdom (Korniyenko & Loukoianova, ). Research has found significant spillovers from surprise monetary policy announcements (Caceres, Carrière‐Swallow, Demir, & Gruss, ), from asynchronous monetary policies between the United States and Europe (Buitron & Vesperoni, ) and from the appreciation of the US dollar in recent years (Chow, Jaumotte, Park, & Zhang, ).…”
Section: The G20's Mixed Results On Monetary Policymentioning
confidence: 99%
“…Another major demand driver of house prices is the real user cost of capital, which is usually defined as the after-tax mortgage interest rate minus expected house price appreciation Figure 4 reproduced with permission from Del Negro, et al, (2019). Furthermore, there is a high degree of co-movement in international interest rates, particularly long term interest rates (see Caceres, et al (2016)), which are more relevant for the valuation of long-lived assets like housing. This reflects not only the post-1990 convergence of interest rates within Europe, but also the increased synchronization of international business cycles, the related adoption of more uniform monetary policy goals and tactics across major central banks, and a related increase in asset substitution among the sovereign debt of highly-rated nations.…”
Section: Drivers Of House Price Cyclesmentioning
confidence: 99%