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A Welfare‐Based Analysis of International Monetary Policy Spillovers at the Zero Lower Bound
Author(s) -
HABERIS ALEX,
LIPIŃSKA ANNA
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12655
Subject(s) - zero lower bound , welfare , economics , monetary policy , zero (linguistics) , monetary economics , exchange rate , international economics , financial crisis , forward guidance , financial integration , financial market , inflation targeting , macroeconomics , credit channel , market economy , finance , linguistics , philosophy
We study the welfare effects of international monetary policy spillovers at the zero lower bound, focusing on the effects of forward guidance in a large economy (“foreign”) on its smaller trading partner (“home”) in scenarios motivated by the global financial crisis. We find that foreign forward guidance has an overall prosper‐thy‐neighbor effect on the home economy as long as it increases foreign welfare. This finding holds under alternative assumptions about exchange rate pass‐through or the degree of international financial integration. However, foreign forward guidance may worsen the trade‐off between the stabilization objectives of home monetary policy.