The Spillover Effects of Unconventional Monetary Policies in Major Developed Countries on Developing Countries

Abstract

The objective of this paper is to examine the impact of unconventional monetary policy measures adopted in developed countries (the US, UK, Euro Area and Japan) on developing economies (Brazil, China, India and Russia). First, we analyse the domestic and cross-border financial market impact of unconventional monetary policy announcements by central banks, using a series of event studies. We find that quantitative easing (QE) by the FED, BoE, ECB and BoJ influenced long term yields, equity prices, and possibly exchange rates both in the developed and developing countries (for example we find that QE resulted in decreases in long term yields by about 125 basis points in the US, about 100 basis points in the UK, and about 50 basis points in the Euro Area and Japan). Next, using the National Institute’s global macroeconomic model NIGEM, we conduct a series of macroeconomic simulations that allow us to assess the impact of lower yields, higher equity prices, and lower investment premia (attributable to unconventional monetary policy measures) on the real economy in the developed and developing countries (for example, we find that lower yields only, could have stimulated GDP (average change in levels, over a 5 year period) by about 1 /₄ per cent inthe US, 1 /₂ per cent in the UK, /₄ per cent in the Euro Area and Japan, about 1 per cent in Brazil and Russia (in Brazil more than Russia), and /₄ per cent in India and China (in India more than China)).