Responding to the Monetary Superpower Investigating the Behavioral Spillovers of U.S. Monetary Policy
Abstract/Contents
- Abstract
- Between 2002 and 2006, the United States Federal Reserve set interest rates significantly below the rates suggested by well-known monetary policy rules. There is a growing body of research suggesting that this helped fuel an excess of liquidity in the U.S. that contributed to the 2008 worldwide financial crash. What is less well known is that a number of other central banks also lowered interest rates during this period. An important question, then, is what role the Federal Reserve played in influencing other central banks to alter their own monetary policies, which could have magnified the Fed’s actions in creating global liquidity. This paper addresses the issue by showing how spillovers in central bank behavior occur in theoretical rational expectations models. It then establishes empirically how U.S. monetary policy actions affect the actions of other major central banks, particularly in terms of interest rates and currency interventions. The data suggest that the U.S. lowering its policy rate, in general or in reference to a specific monetary policy rule, influences other central banks to lower their own policy rates and intervene in currency markets, even when controlling for worldwide macroeconomic trends. Finally, this paper shows that spillovers from U.S. actions are partially responsible for the worldwide lowering of interest rates and the increase in currency reserves in the early 2000’s that may have contributed to the subsequent worldwide liquidity boom.
Description
| Type of resource | text |
|---|---|
| Date created | May 2012 |
Creators/Contributors
| Author | Gray, Colin | |
|---|---|---|
| Primary advisor | Taylor, John B. | |
| Degree granting institution | Stanford University, Department of Economics |
Subjects
| Subject | Stanford Department of Economics |
|---|---|
| Subject | United States |
| Subject | Federal Reserve |
| Subject | interest rates |
| Subject | monetary policy |
| Subject | excess liquidity |
| Subject | 2008 financial crash |
| Subject | spillover effects |
| Subject | rational expectations |
| Genre | Thesis |
Bibliographic information
| Related item | |
|---|---|
| Location | https://purl.stanford.edu/qt702mc3811 |
Access conditions
- Use and reproduction
- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
Preferred citation
- Preferred Citation
Gray, Colin. (2012). Responding to the Monetary Superpower
Investigating the Behavioral Spillovers of U.S. Monetary Policy. Stanford Digital Repository. Available at: https://purl.stanford.edu/qt702mc3811
Collection
Stanford University, Department of Economics, Honors Theses
View other items in this collection in SearchWorksContact information
- Contact
- econ@stanford.edu
Also listed in
Loading usage metrics...