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    International channels of monetary policy transmission

    Wohlfarth, Paul (2020) International channels of monetary policy transmission. PhD thesis, Birkbeck, University of London.

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    This thesis investigates international channels of monetary policy transmission in global financial markets from empirical and theoretical perspectives. The main contributions are empirical, where the focus is on transmission at daily frequency allowing for the time-varying volatility by assets. Chapter 2 develops a daily measure for monetary policy attention, using Google Trends data. Policy attention, alongside interest rate futures, are used in an analysis of policy spill-overs on European and US money and capital markets. Policy mainly affects variances rather than means of processes. Chapter 3 extends the analysis to a multivariate framework, analysing dynamic covariances, filtered by Dynamic Conditional Correlations, BEKK, and the RiskMetrics long-memory exponential smoother. Policy affects both asset variances and covariances, domestically and internationally, supporting both signalling and portfolio rebalancing channels. Chapter 4 examines foreign exchange markets, focussing on covered interest parity (CIP) deviations, measured by cross-currency bases from swaps. CIP failure cannot be explained by risk alone, given observed bases widened in a relatively low-risk environment (2014-2016). Informed by preferred habitat theory of risk averse arbitrage, we empirically examine the impact of various factors on cross-currency bases of different maturities as well as co-movement between different currency bases. Findings highlight the role of policy and volatility and indicate the presence of time-varying market segmentation that is linked to volatility. Overall this dissertation suggests more complex international policy transmission effects than commonly assumed: Policy is transmitted via variances often onto particular market segments, creating a complex system of spill-over relationships. Volatility plays an important but not exclusive role, as it exacerbates the effect of policy asymmetry. Limits to arbitrage offers explanations for observed empirical findings.


    Item Type: Thesis
    Copyright Holders: The copyright of this thesis rests with the author, who asserts his/her right to be known as such according to the Copyright Designs and Patents Act 1988. No dealing with the thesis contrary to the copyright or moral rights of the author is permitted.
    Depositing User: Acquisitions And Metadata
    Date Deposited: 04 Oct 2021 14:18
    Last Modified: 04 Oct 2021 14:18


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