Dynamic Impact of Unconventional Monetary Policy on International REITs

Hardik A Marfatia,Rangan Gupta,Keagile Lesame

doi:10.3390/jrfm14090429

Abstract

In this paper, we estimate the dynamic impact of unconventional monetary policy in the US on international REITs. Unlike existing studies which are limited to conventional policy tools and undertake a static approach, we use an event study approach and estimate a time-varying parameter model to investigate the dynamic impact of forward guidance (FG) and large-scale asset purchases (LSAP) shocks on the international REIT returns. We also compare the effects of these unconventional tools with the effects of conventional federal funds rate (FFR) shocks. The results show that the response of international REITs to unconventional policy shocks depends on the time under consideration. FG shocks have greater time-variation in the impact on REIT returns compared to LSAP shocks, particularly with Australia, Belgium, and the US REIT markets. Furthermore, FG shocks broadly have a negative impact on REITs while the results for LSAP effects are mixed. We also find that in most countries, REITs time-varying response of FG shocks is related to changes in gold prices and financial conditions.

Highlights

Our results broadly suggest that conventional monetary policy shocks (FFR) had a stronger impact on international REITs than unconventional monetary policy shocks
This paper distinguishes the individual impact of federal funds rate (FFR), forward guidance (FG), and large-scale asset purchases (LSAP) on global REITs and shows how these effects have evolved over time
Our findings are that the response of international REITs to monetary policy shocks varies over time and across the countries

Summary

Introduction

Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Unconventional monetary policy shocks are transmitted to financial markets, including REITs through the signaling and portfolio re-balancing channels. These are both subsumed in the interest rate channel. Existing literature that estimates the impact of monetary policy on international REIT markets is limited to either conventional tools or the use of a static approach. Our results broadly suggest that conventional monetary policy shocks (FFR) had a stronger impact on international REITs than unconventional monetary policy shocks (FG and LSAP) This is consistent with findings by (Feldkircher and Huber 2018) who found that conventional US monetary policy effects were persistent while QE effects were short-lived and only effective during the period of the global financial crisis. We explore the relationship between the time-varying impact of FG and LSAP and an explanation of the impact

Methodology

Dynamic Impact of Unconventional Monetary Policy

Conclusions