Easing monetary policy with financial market spillovers--a global VAR analysis

• Main Authors: Ken-Yu Lin, 林耕宇
• Other Authors: Teng-yuan Hu
• Format: Others
• Language: zh-TW
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/zyu24c

碩士 === 淡江大學 === 產業經濟學系碩士班 === 101 === From the US subprime mortgage crisis in 2007 to recent European sovereign debt crisis, a series of crises caused world panic and triggered the massive financial market liquidity crunch. As the time goes by, crisis spread all over the world. In order to deal with this financial turmoil, every government increased their bailout fund and unemployment subsidies and strengthen government spending to boost the economy, but it also caused many national debt skyrocketed. The debt deterioration country are emerging apparently especially in European economy, including Greece, Italy, Spain, Portugal and Ireland (so-called "PIIGS"). Their government debt ratios are high, the debt crisis on the verge resulting in the five countries sovereign credit default swap (CDS, credit default swaps) deteriorate, then set off a new round of European debt crisis. In order to deal with a series of ensuing problems, central banks have resorted to easing monetary policy which using the "quantitative easing" (QE) as monetary policy, rather than the traditional monetary policy tools to soothe market liquidity risk. Hence, this study analyzes the 33 national data over the period from December 2008 to January 2013. The sample period covers not only the United States implementation of the QE1 to QE4 but also covers the European debt crisis and other central banks’ quantitative easing monetary policy implementation point of time. This study uses the global vector autoregressive (GVAR) model developed by Pesaran, Schuermann and Weiner (2004), Dees, di Mauro, Pesaran and Smith (2007) and Dees, Holly, Pesaran and Smith (2007). The GVAR model is capable of capturing explicit spillover effects and demonstrating global interaction among the countries. In contrast to the traditional literature, this study combines the model and theme and discusses three issues. First, it uses the US quantitative easing monetary policy as the impulse, observes the response of the main countries, and examines whether national financial market have the spillover effects. Second, it separates the country into the region which use the geographical division to see whether the investors have flight to safety phenomenon. Last thing is the observation of each variable to predict the explanatory power of the future and to provide global investors a define market trends. The results indicate that the global financial variables have significant spillover effects, and the emerging market exchange rate will have upward pressure when the advanced countries face depreciation. On the other hand, when the European bond market interest rates rise, investors have turned the investment behaviors such as: U.S. or Asia. In the forecast, on average, China, and the United Kingdom are affected by the U.S. quantitative easing monetary policy, mainly through asset prices channel, and Euro zone,Japan and the Asian on average through credit derivatives markets way. Short-term and long-term bonds on average have higher explanatory power in the zero phase of the Euro zone and in the zero and the tenth phase of the PIIGS, which means through interest rates channel. It shows that the variables explanatory power of the future does not hold explicit entirely the same in different regions. Based on the above, it can be found that the market does have a reduced risk of bond defaults while the United States implements the QE1 to QE4. When the prospects of PIIGS or euro zone bond markets are not optimistic, the investors have the flight to safety phenomenon, which appears primarily in the United States, Asia, and the Latin American countries. Under the U.S. quantitative easing monetary policy, Latin American countries and the Asian region will be confronted with the pressure of appreciation.