Both the ECB and the Fed implemented various unconventional measures in response to the last crisis. While the ECB's policies were based on direct lending to banks, the FED adopted large-scale asset purchases. According to the empirical evidence these policies had economically beneficial effects in the US and the Eurozone but these measures have also certain spillovers which scope and exact impacts are quite difficult to estimate. There have been already many papers focusing on cross-border impacts of the FED's policies, but far less studied the spillovers of the ECB's policies. This work provides a theoretical background concerning the unconventional monetary policies implemented by the ECB and the FED after 2008 and analyse the impacts of ECB's policies on six particular countries outside euro area. The Impulse Responses of output, inflation, domestic interest rate and exchange rate are analyzed via block-restricted VAR model. My results confirm that euro area monetary policy does have an impact on non-euro area countries, although the response of macroeconomic variables in analysed countries are heterogeneous and also differ in the period before and after September 2008. Countries seem to be indeed affected more by conventional monetary policies until September 2008, but the euro-area monetary policy spills over via unconventional policies after September 2008. Overall, the ECB's policies affect economic activity outside euro area, but does not have significant impact on inflation. Furthermore, the exchange rate just initially drops in response to monetary tightening, but this reaction usually does not last for more than four months.

In this paper we compare the transmission of a conventional monetary policy shock with that of an unexpected decrease in the term spread, which mirrors quantitative easing. Employing a time-varying vector autoregression with stochastic volatility, our results are two-fold: First, the spread shock works mainly through a boost to consumer wealth growth, while a conventional monetary policy shock affects real output growth via a broad credit / bank lending channel. Second, both shocks exhibit a distinct pattern over our sample period. More specifically, we find small output effects of a conventional monetary policy shock during the period of the global financial crisis and stronger effects in its aftermath. This might imply that when the central bank has left the policy rate unaltered for an extended period of time, a policy surprise might boost output particularly strongly. By contrast, the spread shock has affected output growth most strongly during the period of the global financial crisis and less so thereafter. This might point to diminishing effects of large scale asset purchase programs. (authors' abstrct) / Series: Department of Economics Working Paper Series

<p>This dissertation presents two essays on Markov-Switching dynamic stochastic general equilibrium models.</p><p>The first essay is "Perturbation Methods for Markov-Switching Models," which is co-authored with Juan Rubio-Ramirez, Dan Waggoner, and Tao Zha. This essay develops an perturbation-based approach to solving dynamic stochastic general equilibrium models with Markov-Switching, which implies that parameters governing policies or the environment evolve over time in a discrete manner. Our approach has the advantages that it introduces regime switching from first principles, allows for higher-order approximations, shows non-certainty equivalence of first-order approximations, and allows checking the solution for determinacy. We explain the model setup, introduce an iterative procedure to solve the model, and illustrate it using a real business cycle example.</p><p>The second essay considers a model with financial frictions and studies the role of expectations and unconventional monetary policy during financial crises. During a financial crisis, the financial sector has</p><p>reduced ability to provide credit to productive firms, and the central bank may help lessen the magnitude of the downturn by using unconventional monetary policy to inject liquidity into credit markets. The model allows agents in the economy to expect policy changes by allowing parameters to change according to a Markov process, so agents have expectations about the probability of the central bank intervening during a crisis, and also have expectations about the central bank's exit strategy post-crisis. </p><p>Using this Markov Regime Switching specification, the paper addresses three issues. First, it considers the effects of different exit strategies, and shows that, after a crisis, if the central bank sells off its accumulated assets too quickly, the economy can experience a double-dip recession. Second, it analyzes the effects of expectations of intervention policy on pre-crisis behavior. In particular, if the central bank commits to always intervening during crises, there is a loss of output in pre-crisis times relative to if the central bank commits to never intervening. Finally, it considers the welfare implications of committing to intervening during crises, and shows that committing can raise or lower welfare depending upon the exit strategy used, and that committing before a crisis can be welfare decreasing but then welfare increasing once a crisis occurs.</p> / Dissertation

This dissertation consists of three essays on topics in macroeconomics. In the first chapter, I construct a macroeconomic model with a heterogeneous banking sector and an interbank lending market. Banks differ in their ability to transform deposits from households into loans to firms. Bank size differences emerge endogenously in the model, and in steady state, the induced bank size distribution matches two stylized facts in the data: bigger banks borrow more on the interbank lending market than smaller banks, and bigger banks are more leveraged than smaller banks. I use the model to evaluate the impact of increasing concentration in US banking on the severity of potential downturns. I find that if the banking sector in 2007 was only as concentrated as it was in 1992, GDP during the Great Recession would have declined by 40% less it did, and would have recovered twice as fast. In the second chapter, my co-author and I investigate the impact of firm capacity constraints on aggregate production and productivity when the economy is driven by aggregate and idiosyncratic demand shocks. We are motivated by three observed regularities in US GDP: business cycles are asymmetric, in that large absolute changes in output are more likely to be negative than positive; capacity and capital utilization are procyclical, and increase the procyclicality of measured productivity; the dispersion of firm productivity increases in recessions. We devise a model of demand shocks and endogenous capacity constraints that is qualitatively consistent with these observations. We then calibrate the model to aggregate utilization data using standard Bayesian techniques. Quantitatively, we find that the calibrated model also exhibits significant asymmetry in output, on the order of the regularities observed in GDP. The third chapter explores the role of distance in equilibrium selection. I consider a model economy with multiple steady state equilibria where a high productivity and a low productivity technology are available for use in production. The high productivity technology requires a fixed set up cost for production. Sectors are linked by localized production complementarities. I consider selection under a learning rule in which agents imitate their most successful neighbor. As distance between neighbors decreases, the possible profits from industrialization increase, and the likelihood that the learning rule process converges to a steady state matching the H equilibrium increases. The result suggests that, in the presence of localized technology spillovers, there may be important gains to economic growth from infrastructure development. / text

In this paper, I examine the effects of unconventional monetary policies and quantitative easing programs in the U.S and UK on their respective commercial real estate markets. I study two sample periods (2007-2017 and 2009-2017) and find that between 2007 and 2017, quantitative easing and the expansion of the U.S monetary base significantly drives the returns of the U.S commercial indices as well as the returns of the UK commercial index. Between 2009 and 2017, I find the expansion of the U.S monetary base only drives the UK commercial index. The difference in the results between these two sample periods may be a function of the magnitude of assets being purchased by the Fed prior to 2009 as well as the volatility and uncertainty that gripped the markets between October and December of 2008. I find that the UK index drives the expansion of the UK monetary base in both 2007-2017 and 2009-2017. This is likely the result of global uncertainty and volatility surrounding 2008 as well as the risk of financial market collapse inspiring monetary policy action. I also find the indices show a predominantly negative reaction to U.S and UK monetary policy events; suggesting the indices react negatively to the events that preceded the monetary policy announcements as well as the announcements themselves.

The diploma thesis focuses on quantitative easing in Japanese economy. In the first part the problematic is set into a theoretical frame and then is connected with the development of the modern Japanese economy. The thesis describes the progress of the both waves of quantitative easing which have been implemented so far as well as the circumstances of their start and their so far known impacts. The application part presents an evaluation of the impacts of the current wave of quantitative easing. The evaluation is based on the impulse-response analysis.

We analyse the effects of quantitative easing (QE) on Swedish bank profitability on the four largest banks in Sweden between 2015-2021 by utilizing daily stock prices as a proxy for bank profit. Using an event study approach, we find that QE has a significant positive effect on bank profitability in Sweden as wholesale funding conditions improve. This suggests that structural differences in bank funding have an impact on the effect of QE. Furthermore, we investigate the individual effects of QE on bank profitability. We determine that QE benefits banks with higher credit losses on their balance sheet due to improvements in debt serviceability. Finally, we complement our study by investigating how QE affects debtholders of the banks through credit default swaps (CDS). We find that QE reduces prices on CDS, therefore signalling an improvement in wholesale funding conditions. This indicates that both equity and debtholders perceive the effects of QE positively.

The U.S. Federal Reserve (Fed) acted in an unprecedented fashion to drive interest rates aggressively and creatively to the zero lower bound (ZLB) and employed other unconventional monetary policy (UMP) tools to provide stimulus to the U.S. economy during the financial crisis and the subsequent extended recovery period. However, despite these innovative policy tools, the U.S. economy realized a historically weak recovery. The unconventional monetary policy tools, including the expansion of the Federal Reserve’s balance sheet by purchasing longer dated securities, paying interest on reserves, and providing forward guidance, structurally changed the conduct and implementation of monetary policy from the post-WWII experience. Significant research has been developed that describes and analyzes the impact and effectiveness of this experiment in using unconventional monetary policy tools to stimulate the economy. However, very little research has been conducted that studies the response of various economic actors to the Fed’s reversal of these emergency measures as it sought to rein in a potentially overheated economy or counter incipient inflation. When the Fed methodically raised interest rates from 2015 until the end of 2018 investment spending, as indicated by private nonresidential investment spending, did not slow as expected according to mainstream economics or as evident in prior periods of monetary tightening. This anomaly should also be evident in measures at the firm level as firm investment outlays comprise the bulk of the GDP reported private nonresidential investment spending. This research study determined that firm level investment spending, as represented by the growth of total assets, did not respond negatively to the Federal Reserve’s actions that raised interest rates. Other factors such as the general improvement in GDP growth, improved business confidence in the national economy, and greater optimism of near-term firm prospects explain to a far greater degree the growth in total assets compared to Fed activity. Effectively, factors contributing to improved business confidence overwhelmed the Federal Reserve’s intention to slow investment growth by raising interest rates. This research supports the Bernanke et al. (2019) proposal and Hebden and López-Salido’s (2018) research that indicate a stimulative monetary policy when rates are constrained by the effective lower bound and characterized by a lower for longer (L4L) monetary posture results in better output and inflation outcomes. Further, this research offers empirical evidence of Bernanke’s caution that although L4L results in better outcomes, there is a potential for output and/or inflation overshoot forcing the Federal Reserve to abruptly reverse policy stance, a scenario played out by the Federal Reserve soon after it stopped tightening at the end of 2018. The results here expand the work completed by Khan and Upadhayaya (2018), and Konstantinou and Tagkalakis (2011) that business confidence has a significant influence on business investment spending by analyzing the response of business decision makers during an unprecedented time as the Federal Reserve removed emergency measures and turned to a tightening regime. / Business Administration/Interdisciplinary

The thesis aims to explain different theoretical approaches to definition of deflation, categorize deflation, define positive and negative connotations typical for each economical school, define the role of monetary policy in relation to price stability and monetary instruments with an emphasis on unconventional. The last part applies theoretical knowledge on Swiss situation, describes the interventions between years 2009 and 2016 and presents their initially predicted and subsequently real, graphically illustrated impact on economy. The theoretical part of diploma concludes that mainstream economy perception is the most suitable for definition of deflation, therefore perceive it as a negative phenomenon and calls for elimination. Each step of SNB monetary policy was controversial. The author opens the question of the necessity of intervention from 2009, explains the reasons of SNB steps from 2011 and exit strategy from 2015. However, the author do not forget on negative connotations. In the final part, thesis outlines the most discussed topics raised by Swiss interventions and opens the topic of negative rates as unconventional monetary instrument.

This thesis applies time-varying parameter vector autoregression (TVP-VAR) model with stochastic volatility to assess the effectiveness of quantitative easing in time for the Bank of Japan, the European Central Bank, the Bank of England and the Federal Reserve System between the global financial crisis and COVID-19 pandemic. We find pronounced and statistically significant response of GDP and level of implied stock market volatility to a QE shock whereas the response of CPI is feeble and statistically insignificant. We argue that this does not necessarily imply that there is no effect of QE on CPI but rather that our model was not able to detect it. We believe that this may be due to inflation expectations channel which our model did not account for. This can be reassessed with a TVP-FAVAR model which is more suitable for such an analysis as it can encompass a larger set of variables. Moreover, apart from the US, we report increasing effectiveness of QE in time. This is opposed by the researchers who believe that QE has rather decreasing effectiveness in time because it is more efficient during economic distress and then its efficiency tends to decrease during normal times. We explain this deviation by citing other unconventional monetary tools such as credit easing, forward guidance or negative...