International effects of euro area forward guidance

Vol: 
54/2020
Author name: 
Bock M
Feldkircher M
Siklos PL
Year: 
2020
Month: 
May
Abstract: 

This paper explores the domestic and international effects of an increase in observed interest rates (conventional monetary policy) and expected interest rates (forward guidance). We find significant spillovers to a broad range of countries when both are subject to a tightening shock: Output growth and inflation decelerate and equity returns decline. Currencies of euro area neighboring countries tend to depreciate against the euro. A tightening forward guidance shock triggers more persistent effects on euro area and international interest rates. We find that international effects vary over the sample period when either interest rates are shocked.

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