Title: Monetary policy across space and time
Authors: Katerina Petrova - University of St Andrews (United Kingdom) [presenting]
Christian Matthes - Universitat Pompeu Fabra (Spain)
Laura Liu - Federal Reserve Board (United States)
Abstract: Two questions are asked: (i) is the conduct of monetary policy stable across time and similar across major economies, and (ii) do policy decisions of major central banks have international spillover effects? To answer these questions, we build on recent semi-parametric advances in time-varying parameter models that allow us, in addition to accounting for the parameter drift, to increase the dimension of the VAR and to model jointly three advanced economies (US, UK and the Euroarea). Our main reduced-form finding is an increased connectedness between and within countries during the recent financial crisis. To investigate policy spillovers, we identify three economy-specific monetary policy shocks using a combination of sign and magnitude restrictions. We find that monetary policy shocks were larger in magnitude and more persistent in the early 1980s than in subsequent periods. We also uncover positive spillover effects of policy between countries in the 1980s and diminished, and sometimes negative `beggar-thy-neighbour' effects in the second half of the sample. Moreover, during the 1980s, we find evidence for policy coordination between the three central banks.