Volatility spillovers in forex markets and the role of quantitative easing

This paper employs the money market and goods market model (IS-LM) and the aggregate demand-aggregate supply model (AD-AS model) to analyze the impact of the Federal Reserve's four rounds of dollar quantitative easing (QE) on inflation from the perspective of monetary credit. From the aggregate supply and dollar settlement system angle, the decline in the share of the dollar and the SWIFT settlement system is examined for its effects on inflation. Additionally, it explores the profound implications of the 2025 tariff war on U.S. sovereign bonds within the U.S. sovereign bond recycling system. Consequently, the three major pillars of dollar credit are under severe strain, and the dollar capital market faces collapse.

Quantitative easing, bank lending, and aggregate fluctuations

This paper examines the short-term effects of quantitative easing (QE)–related announcements by the European Central Bank (ECB) on the euro’s exchange rate against major currencies. Employing a standard event-study methodology based on daily data from 2015 to 2018, the analysis measures abnormal changes in 14 euro exchange rate pairs following ECB press releases and press conferences explicitly addressing QE. Results indicate that announcements concerning the continuation or expansion of QE programmes typically led to a depreciation of the euro, while statements signalling tapering or normalization triggered short-term appreciations. These asymmetric reactions confirm that the signalling and portfolio rebalancing channels dominate the FX transmission of QE. Moreover, the volatility of responses declined over time, suggesting that markets progressively internalized QE as a structural element of the monetary policy framework. The findings contribute to the literature by extending event-study evidence to the euro’s foreign exchange dynamics and offer insights for policymakers seeking to manage expectations and communication during unconventional monetary interventions. The results also provide a forward-looking benchmark for anticipating currency market behavior should balance-sheet policies be reintroduced in future periods of macroeconomic stress.

This review analyzes how Federal Reserve easingfederal funds rate reductions and quantitative easing (QE)feeds into the inputs of meanvariance optimization (expected returns, variances, and covariances) and how those shifts propagate to institutional rebalancing under stress. Drawing on evidence from the Dot-Com bust (20002002), the Global Financial Crisis (20082009), and the COVID-19 period (20202022), it integrates theory on discount-rate channels and QE transmission (portfolio-rebalancing, signaling, and liquidity) with estimates mapped to MVO parameters. Across episodes, easing compresses sovereign and credit yields, reshapes cross-asset correlation structures, and can induce benchmark-constrained institutions to rebalance procyclically, amplifying short-horizon volatility. The main gap is the limited treatment of policy-driven regime shifts and liquidity frictions in dynamic MVO; addressing it has practical relevance for regime-aware covariance modeling, liquidity-adjusted risk budgets, and policy-contingent rebalancing rules.

The triple shocks of the financial crisis, sovereign debt crisis, and COVID-19 pandemic have exerted significant impact on the financial markets in the Eurozone. Since the 2008 recession, the European Central Bank (ECB) has implemented an array of unconventional monetary policies (UMPs). These policies aim to address issues such as financing constraints and low inflation rates that the traditional monetary policy framework could not handle. The data indicated that when the ECB implemented its quantitative easing (QE) programs (e.g., the pandemic emergency purchase program), inflation in the Eurozone bounced back. It went up from −0.3% in August 2020 to 5% by December 2021. These measures prevented the pandemic from pushing the economy into a long-lasting deflation pressure. As the world’s second-largest economy, China’s monetary policy decisions play a crucial role in maintaining economic stability and fostering sustainable growth. This study examines ECB’S major unconventional monetary policy measures, evaluates their effects, and explores how these align with China’s monetary policy formulation and reforms. This research can provide useful insights for shaping monetary policy in the Eurozone and emerging economies such as China, especially during times of economic uncertainty.

The COVID-19 pandemic posed unprecedented challenges to global economies, necessitating swift and adaptive responses from central banks worldwide. It specifically details the various decisions made by the Federal Reserve. The article presents data-driven insights into the impact of these decisions through tables. This paper explores the various monetary policies implemented by central banks during the crisis, including interest rate cuts, quantitative easing, and emergency lending programs. It examines the impact of these policies on financial stability, inflation, employment, and economic recovery. Additionally, the paper evaluates the long-term consequences of expansive monetary policies, including potential risks such as inflationary pressures and asset bubbles. Moreover, these various aspects demonstrate how the policies and decisions implemented during the COVID-19 pandemic have impacted the economies of Europe, the United States, and the world at large. This study analyzes the adaptability of central banks during crises and offers policy recommendations.

Beyond the bounds of monetary bonds: quantitative easing and the geographies of capital switching by Eurozone banks

Quantitative easing, tightening, and the term premium channel in the Euro Area

Amid the global financial crisis caused by the COVID-19 pandemic, central banks in many countries implemented quantitative easing (QE) by purchasing government bonds and other securities to stabilize macroeconomic conditions. In addition to inflation control, financial stability has become a critical policy objective. This study explores the transformation from the “impossible trinity” to the “new monetary trinity,” which redefines the balance between exchange rate stability, financial openness, and monetary independence. Employing a Systematic Literature Review (SLR) combined with bibliometric analysis, 146 publications from ScienceDirect and Scopus (2020 to 2023) were examined using VOSviewer and Microsoft Excel. The findings reveal distinct methodological preferences. Dynamic Stochastic General Equilibrium (DSGE) models were found to be dominant in advanced economies, while Vector Autoregression (VAR), Autoregressive Distributed Lag (ARDL), and Vector Error Correction Models (VECM) have been more commonly applied in emerging markets. Evidence indicates that quantitative easing plays a significant role in managing capital flows, stabilizing exchange rates, and maintaining policy autonomy. However, trade-offs still exist, particularly in small open economies. This study offers structured insights into the effectiveness of quantitative easing within the framework of the new monetary trinity during a global crisis and contributes to the literature by systematically mapping how quantitative easing interacts with the evolving trilemma framework, providing context-specific lessons for post-crisis monetary strategy.

Abstract The paper describes a method to transform vector smooth transition autoregressions in a form that is particularly suitable for policy analysis, because it is of low-dimension and retains certainty-equivalence. Optimal rules are calculated with the state dependent coefficients approach, which allows linear methods to solve nonlinear problems. The methodology is applied to revisit interest rate and quantitative easing (QE) monetary policy in the United States during 1979–2018. The actual size of QE and duration of the zero lower bound are found close to those prescribed by the optimal policy, but not the timing and composition of QE. The methodology compares favourably against alternative optimization approaches based on linearization or numerical search.

Abstract We show that Quantitative Easing (QE) stimulates investment via a corporate bond–lending channel. Fed's large‐scale purchases of mortgage‐backed securities (MBS) and treasuries create a vacuum of safe assets, prompting safer firms to invest by issuing relatively “safe” bonds. Using microdata around different QE rounds, our robust results suggest that QE increases the investment of firms with bond market access. The effect is larger for safer firms. This growth is financed with senior bonds, without higher shareholders' payouts. Results hold excluding the financial crisis period. The findings support a stylized model where lower supply of treasuries reduces “safe” corporate bond yields, stimulating investment.

In the aftermath of the COVID-19 pandemic, global economies faced unprecedented disruptions, including sharp declines in GDP, rising unemployment, and widespread financial instability. This paper conducts a comparative analysis of the fiscal and monetary responses implemented by Australia and the United States, focusing on post-2020. This study identifies key policy innovations using a mixed-method approachcombining policy document analysis, economic data comparison, and econometric modeling. It evaluates their short-term and long-term macroeconomic impacts. The findings reveal that Australia emphasized direct wage subsidies such as the JobKeeper program and implemented yield curve control to stabilize interest rates. In contrast, the United States prioritized large-scale stimulus packages, including direct household payments, and adopted aggressive monetary easing through quantitative easing. These divergent strategies influenced each countrys recovery trajectory, labor market resilience, inflationary pressures, and structural economic transformation. The study concludes by offering recommendations for optimizing future policy design to improve economic resilience and crisis preparedness.

The 2008 global financial crisis, triggered by the U.S. subprime mortgage collapse, prompted central banks to adopt Quantitative Easing (QE) policies to stabilize financial markets and stimulate economic recovery. This study investigates the influence of QE on stock market behavior, focusing on feedback trading dynamics and volatility asymmetry in broad-based and sector-specific indices. The results reveal that QE amplifies positive feedback trading, strengthens market trends, and fosters investor overconfidence. Additionally, asymmetric volatility patterns emerge, with negative market shocks exerting a more pronounced effect on volatility than positive ones. These behavioral responses suggest that QE not only supports asset price growth but may also unintentionally reinforce speculative momentum and systemic vulnerability. The findings offer valuable implications for investors and policymakers, emphasizing the psychological consequences of unconventional monetary interventions. By bridging behavioral finance and monetary policy perspectives, the study contributes to a deeper understanding of how QE reshapes investor sentiment and market stability.

This study examines the impact of U.S. Quantitative Easing (QE), Interest Rate Spread, and Control of Corruption on Short-Term Debt in developing Asian countries. Using panel data from Indonesia, Thailand, the Philippines, Vietnam, and China from 2000 to 2022, the analysis employs a Random Effect Model (REM) approach. The findings reveal that U.S. QE has a positive and significant impact, indicating that increased global liquidity encourages short-term borrowing in these economies. Conversely, Interest Rate Spread negatively affects short-term debt, suggesting that higher spreads reduce reliance on external short-term financing. Additionally, stronger Control of Corruption is associated with lower short-term debt levels, highlighting the role of governance in reducing financial vulnerabilities. These results underscore the importance of maintaining prudent monetary and fiscal policies to manage external debt risks. Policymakers should strengthen governance frameworks, ensure balanced interest rate policies, and develop strategies to mitigate risks from external financial shocks. By improving institutional quality and promoting long-term financing stability, developing Asian economies can enhance financial resilience and reduce excessive reliance on volatile short-term debt.

The intersection of climate change and monetary policy has become a central theme in contemporary economic debates. As climate-related risks intensify, central banks face increasing pressure to integrate environmental sustainability into their policy frameworks. This article explores the concept of green monetary policy and examines whether central banks can effectively balance climate risk mitigation with their traditional mandate of price stability. Drawing on global experiences from the European Central Bank (ECB), the Bank of England, and emerging market economies, the study analyzes policy tools such as green quantitative easing, climate-related collateral frameworks, and sustainable finance incentives. The article further evaluates the potential trade-offs between inflation control, financial stability, and long-term environmental objectives. Ultimately, it argues that while central banks play an important supporting role, climate mitigation should not compromise their primary mandate. Instead, a coordinated approach involving fiscal policy, financial regulation, and international cooperation is essential to ensure that green monetary policy enhances resilience without undermining credibility.

After the 2008 Global financial crisis, the Federal Reserve (Fed) initiated Quantitative Easing (QE) programs in order to inject liquidity into markets in the form of purchases of mortgage and government bonds. The objective of these policies was primarily to reduce interest rates, encourage credit expansion, and spur economic recovery. In this context, this study assesses the macroeconomic effects of Quantitative Easing in the United States employing a Structural Vector Autoregression (SVAR) framework, using quarterly data spanning the period from 2003Q1 to 2025Q1. The findings of estimation indicate that QE shocks have a significant effect in reducing long-term treasury yields, weakening the U.S. currency against the Euro currency, and opening up credit channels in the short run. The impact on GDP is shown to be initially adverse, reflecting delay in absorption of liquidity in real sectors. The effect of inflation in response to QE is also shown to be limited in extent, implying that injected liquidity mostly remains in financial markets and not stimulating real demand. The rate of unemployment is shown to first increase in response to shocks in QE, reflecting the delay in transmission of monetary expansion into productive investment. These findings highlight the subtle and often delayed transmission processes of QE and call for complementarity of monetary policies in order to enhance real-sector recovery and employment generation.

ABSTRACT This study highlights the importance of analysing the relationship between monetary policy and inequality, both before and after redistribution, in order to better understand the socio-economic and fiscal impacts of monetary policy. We focus on the period from 1995 to 2023, during which monetary policy reached unprecedented levels of accommodation in modern economic history. Using the wavelet coherence approach, our results show that this relationship is complex and may vary over time and across countries. Monetary easing, particularly during periods of economic stress, notably in the early 2000s and the 2008 financial crisis, and quantitative easing, often increased pre-redistribution inequality in most countries. The main driver of increased pre-redistribution inequality during QE periods is the wealth channel, where the appreciation of asset prices disproportionately benefits higher-income households. The effect on post-redistribution inequality appears to be more heterogeneous and potentially dependent on the strength of fiscal redistribution policies. In some countries, such as France and Finland, monetary easing has mitigated or even reduced inequality, while in others, such as Germany and Japan, it has been accompanied by an increase in inequality.

Climate change has introduced new challenges to global economic stability, prompting central banks to reconsider their roles in supporting the transition to a low-carbon economy. This study aims to evaluate the role of central banks in green monetary policy through a Systematic Literature Review (SLR) approach. By analyzing 31 selected scholarly articles from reputable international journals, this research identifies trends, instruments, and institutional dynamics related to the integration of climate policy into the monetary policy framework. The findings indicate that central banks have begun to develop instruments such as green quantitative easing, a preference for green bonds, and environmentally oriented window guidance. Nevertheless, the effectiveness of green monetary policy is significantly influenced by institutional capacity, cross-sectoral coordination, and the presence of a supportive legal framework. This review underscores the importance of evidence-based approaches, regulatory harmonization, and the strengthening of sustainability frameworks in designing climate-responsive monetary policies. The resulting policy implications are expected to serve as a reference for policymakers in enhancing the role of central banks in the era of climate change.

Quantitative easing (QE) has been criticized for helping fuel the post-COVID inflation boom and causing large central bank losses. In this paper, we argue that QE should be evaluated mainly on its ability to achieve core macro-objectives as well for its effects on the consolidated fiscal position of the government and central bank, although central bank losses can matter to the extent that they may weaken central bank credibility. Using a DSGE model with segmented asset markets, we show how QE can provide a sizeable boost to output and inflation in a deep liquidity trap and can reduce public debt substantially. This contrasts to the rise in public debt that occurs under fiscal expansion and makes QE an attractive tool in a high debt environment. There is more reason for caution in using QE in a “shallow" liquidity trap in which the notional interest rate is only slightly negative: QE runs more risk of causing the economy to overheat, especially if forward guidance has a strong element of commitment, and is more likely to generate sizeable central bank losses. Some refinements in strategy, including the use of escape clauses, can help mitigate overheating risks.