Monetary policy shocks ‘amplified by financial integration’
Expansionary policy in one country leads to contraction in another, BoC researchers find
The interconnectedness of financial systems can amplify the effects of monetary shocks, researchers with the Bank of Canada (BoC) find. The effect is especially pronounced when it comes to the buying and selling of government bonds and other securities.
“Compared with the case of financial autarky, financial integration amplifies the effects of a domestic shock,” write Jing Cynthia Wu, Yinxi Xie, and Ji Zhang.
In their paper, the researchers created a two-country open-economy model. It showed
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