On December 16, 2008, the U.S.

Federal Reserve’s Federal Open Market Committee (FOMC)

lowered the federal funds rate—its traditional monetary policy instrument—to essentially zero
in response to the most severe U.S. financial crisis since the Great Depression. Because U.S.
currency carries an interest rate of zero, it is essentially impossible for the FOMC to target a
value for the federal funds rate that is substantially less than zero. Faced with this zero lower
bound (ZLB) constraint, the FOMC subsequently began to pursue alternative, “unconventional”
monetary policies, with particular emphasis on forward guidance and large-scale asset purchases
(defined below).
The global financial crisis that began in Summer 2007, and
intensified in Autumn 2008 following the collapse of
Lehman Brothers, led to many central banks cutting policy
rates to levels close to zero and adopting a variety of
unconventional monetary policy measures. These measures
included making large-scale asset purchases (LSAPs) financed
by central bank money — sometimes referred to as
quantitative easing (QE) — and substantially expanding the
availability of central bank credit to the financial sector (these
and other measures are discussed further below).

The recent financial crisis has made clear that the conventional monetary policy through
interest rates steering, was no longer sufficient to bring back the financial stability and economic recovery. Faced with
severe tensions on financial and monetary markets the Federal
Reserve developed several unconventional monetary measures. First of all, they introduced
new liquidity facilities which were gradually expanded to include wider range of collateral and
bigger number of counter-parties. After the collapse of Lehman Brothers, the Fed lowered the
federal funds target rate nearly to zero and implemented unconventional monetary policies
even more intensively. In particular, they started interventions in specific market segments
and initiated the asset purchase programs including commercial papers, longer-term Treasury
bonds and agency debt and MBS. Figure 1 illustrates the way the unconventional policies
affected the Fed’s balance sheet. Since the beginning of the crisis the composition of the
Fed’s assets was significantly altered and the size of the balance sheet more then doubled.

By the end of 2008, the Federal Reserve’s conventional monetary policy tool, the federal funds rate, was
at its effective lower bound as the economy was in the midst of a financial crisis and deep recession. In
these circumstances, the Federal Open Market Committee (FOMC) turned to two unconventional policy
tools—quantitative easing programs and increasingly explicit and forward‐leaning guidance for the
future path of the federal funds rate—in order to provide additional monetary policy accommodation to
help end the recession and strengthen the economic recovery.1 These unconventional policy actions
were intended to put downward pressure on real longer‐term interest rates and more generally to
improve overall financial conditions, including bolstering prices for corporate equities and residential
properties. More favorable financial conditions would, in turn, help boost aggregate demand and check
undesirable disinflationary pressures by providing increased support for consumer spending,
construction, business investment, and net exports.

For decades, the liberalisation of capital markets, as well as the opening of national economies to world market forces, has
stimulated the development of a globally integrated economy. One might wonder the impact of such an environment.
Over time, the economic realm has shown us that the world was smaller than we thought. In this respect, the financial
crisis of 2008 started in the United States catalysed world media’s attention, as the crisis became global in a record time.
Due to the leading position of the USA, the exceptional monetary measures taken by the country after the financial crisis
have been, more than ever, a central concern for all global actors. To be more specific about the US monetary policies, the
Federal Reserve first lowered the Fed funds rate in record time to respond to the financial crisis of 2008. However, given
the exceptional magnitude of the crisis, conventional measures of the Fed showed their limits, pushing the American
central bank to take unprecedented decisions. In this regard, the Fed introduced the forward policy guidance and launched
the so-called Quantitative Easing (QE) programs. In the same vein than a credit easing, the successive QE1, QE2,
Operation Twist and QE3 helped the United States to bounce back their economy, bringing back inflation and
unemployment rate in line with Fed’s dual mandate targets. As the US economic recovery looked sustainable by the end
of 2013, the Fed tapered its QE3 - an open-ended program – between December 2013 and October 2014, ending therefore
one of the biggest but also most controversial monetary policies. Since then, plenty of studies about QE have been
published. Most of recent works has focused on the US domestic effects. However, as the USA appears as a key player in
the world, one might expect spillover effects of the QE programs on the rest of the world. In this regard, the originality of
this thesis is to focus precisely on the global effects of QE, and especially the impact on emerging markets. Given the low
interest rate of US Treasuries, our first intuition is that the QE has provoked a shift of interest to emerging markets by
encouraging investors to rebalance their portfolios to riskier assets. Then, the tapering episode may have shift back the
interest of market participants to safer assets, such as the US sovereign bonds. The amplitude of emerging asset price
changes, as well as the evolution and net impact of such 2. unconventional policies remains prima facie difficult to assess.
This is the central topic of the thesis. To do so, we review thoroughly the existing literature relative to global transmission
of monetary policies in order to provide keys to answer the following questions:
Among students of central banking, the Great Recession will be remembered in part for the monetary policy innovation
it prompted. Since 2008, we have seen several episodes of extreme financial conditions in major economies. In many
countries, monetary policy has shouldered a large share of the policy response. Debt-deleveraging dynamics and
disinflationary pressures have confronted policymakers in several economies with the classic challenge of providing
accommodation when constrained by the zero lower bound. In contrast to the Great Depression, a number of central
banks have found the “courage to act,” which has led to important policy innovation. While it will take many years for
rigorous research to distill the lessons from this period, I will offer a few preliminary observations.1
The Effectiveness of Unconventional Monetary Policy For much of the period since 2008, many economies, including
the United States, the United Kingdom, Switzerland, the euro area, and Japan, have been at or near the zero lower
bound. Many economies have experienced depressed aggregate demand and large and persistent gaps between output
and potential, which have led to significant reductions in the level of policy rates in order to achieve full employment
and target inflation. Moreover, the neutral level of short-term risk-free rates looks to be much lower now in many
countries than it had been previously. A lower neutral rate raises the likelihood that the requisite monetary
accommodation when using conventional tools alone implies setting the nominal policy rate below zero. With
constraints on moving nominal interest rates significantly below zero, central banks have looked to unconventional
policy, such as asset purchases.

Since the Great Recession, the federal funds rate, the primary tool of U.S.
monetary policy, has hit the zero lower bound (ZLB) for extended periods,
and researchers have been keenly interested in investigating how this unconventional U.S. monetary policy and its
tapering affect emerging markets,
particularly the Chinese market. Although China is the world’s largest emerging economy, questions have arisen about the
existence and magnitude of
the spillover effects, because the Chinese capital account is not fully open
and Chinese exchange rates are not flexible. Nevertheless, earlier studies
by Miniane and Rogers (2007) found that capital controls cannot insulate
developing countries from U.S. monetary shocks. Is it true, then, that U.S.
monetary policy has had little spillover effect on the Chinese economy?

As a countercyclical response to the onset of the Great Recession in 2007, the US Federal Reserve
drastically cut the federal funds rate, the conventional monetary policy instrument. Once the federal
funds rate effectively hit the zero lower bound (ZLB) at the end of 2008, the Federal Reserve engaged
in unconventional monetary policies to provide further stimulus. In particular, through a policy called
the large-scale asset purchase (LSAP) program, it purchased longer-term government/agency bonds
and mortgage backed securities. This policy, often referred to as quantitative easing (QE), greatly
affected the size and composition of the Federal Reserve balance sheet. QE’s main goal was to lower
long-term interest rates and thereby, spur economic activity, even as the short-term interest rate was
stuck at the ZLB.1

As a countercyclical response to the …nancial crisis and the onset of the Great Recession
in 2007, the Federal Reserve drastically cut the short-term interest rate, the conventional
monetary policy instrument. Once the short-term interest rate hit the zero lower bound at the
end of 2008 however, the Federal Reserve engaged in unconventional monetary policy, buying
long-term government bonds and private sector assets. This policy, referred to as quantitative
easing, greatly a¤ected the size and composition of the balance sheet of the Federal Reserve
and was meant to provide further monetary stimulus to the economy by lowering long-term
interest rates, even though the short-term nominal interest rate was stuck at the zero lower
bound.1 In this paper, we evaluate the international spillover e¤ects of the quantitative easing
program of the Federal Reserve by assessing its impact on emerging market economies.
There has been an active and in‡uential empirical literature, e.g. Gagnon et al (2011),
Krishnamurthy and Vissing-Jorgensen (2011), and Neely (2010), trying to assess rigorously
the e¤ects of such large-scale asset purchase program on interest rates, expected in‡ation,
and other asset prices such as exchange rates.2 The dominant approach in this literature
is to assess the “announcement e¤ects” of such policies, i.e. the response of high-frequency
…nancial market variables to the Federal Reserve’s announcements of policy changes within a
very narrow time frame, such as one or two days. By focussing on a narrow time window and
isolating the changes in these variables due to the announcement of quantitative easing policy,
this literature has shown that such policies most likely contributed to lowering long-term US
interest rates and depreciating the US Dollar.
We contribute to this literature by taking an alternate complementary approach. We
identify the e¤ects of quantitative easing using an identi…ed vector auto regression (VAR),
in a manner similar to that widely used for assessing the e¤ects of conventional monetary
policy.3

Upon reaching the zero lower bound on nominal short-term interest rates, the US
Federal Reserve and other central banks adopted a range of unconventional monetary
policies. In the US case, these policies are known as Quantitative Easing (QE)
and involve a multitude of measures such as large scale asset purchases (LSAP), a
maturity extension program (”Operation Twist”) and efforts of forward guidance in
order to manage expectations of a prolonged period of low policy rates. Since late
2008 QE was introduced in several steps (i.e. QE1, QE2, QE3). While the policy
rationale differs across each measure and across each of the steps, all measures were
directed towards improving financial conditions for firms and thereby eventually
supporting an expedited recovery from the financial crisis.
Asset purchases of the central bank affect the economy through two alternative transmission channels. First, through the
signaling channel the Fed transmits information about the future monetary policy stance and thereby reduces the
expectations
component of long-term rates, which eventually drive consumption and investment.
Second, to the extent different assets are imperfect substitutes, the term premium
reflected in long-term bond yields is reduced through the portfolio balance channel.
The LSAP program led to an explosion of the Fed’s balance sheet and with it an
abundance of global liquidity. A fraction of this liquidity spilled-over into emerging
market economies (EME) and is widely believed to lead to appreciation pressure on
local currencies, soaring asset prices and heightened concerns about renewed boombust cycles reminiscent of the 1980s
and 1990s. Brazil’s president Dilma Rousseff
refers to a ”monetary tsunami” hitting emerging economies while the Deputy Governor of the Banco Central de Brasil,
Luiz Pereira da Silva, alludes to the experiences
of emerging economies with ”sudden stops” when speaking about ”sudden floods”
of liquidity. Very recently, however, the concerns in emerging markets such as India,
Turkey and others pertain to the tapering of QE, which leads to a fierce reversal
of capital flows back into mature economies. Policymakers struggle again with the
consequences of a ”sudden stop” of inflows or even a reversal of flows rather than a
”sudden flood”.1
1
Abstract : This paper used the C-vine copula model to analyze the dependence
between the returns of the Baht/Dollar exchange rates, and two stock prices in
the travel and tourism sectors of the stock market of Thailand, under the second
round and the third round of quantitative easing programs (QE2 and QE3). The
results show that the degree of dependence which is measured by Kendall’s tau
correlation between the Baht/Dollar exchange rates, and the stock prices of AOT
and MINT under the QE2 program is stronger than under the QE3 program.

Abstract
This paper investigates whether the degree and the nature of economic and
monetary policy interdependence between the United States and the euro area
have changed with the advent of EMU. Using real-time data, it addresses this
issue from the perspective of financial markets by analysing the effects of
monetary policy announcements and macroeconomic news on daily interest
rates in the United States and the euro area. First, the paper finds that the
interdependence of money markets has increased strongly around EMU.
Although spillover effects from the United States to the euro area remain
stronger than in the opposite direction, we present evidence that US markets
have started reacting also to euro area developments since the onset of EMU.
Second, beyond these general linkages, the paper finds that certain
macroeconomic news about the US economy have a large and significant effect
on euro area money markets, and that these effects have become stronger in
recent years. Finally, we show that US macroeconomic news have become
good leading indicators for economic developments in the euro area. This
indicates that the higher money market interdependence between the United
States and the euro area is at least partly explained by the increased real
integration of the two economies in recent years.

3
Abstract
We consider the problem of modelling the dependence between financial markets. In financial economics,
the classical tool is the Pearson (or linear correlation) to compare the dependence structure. We show that
this coefficient does not give a precise information on the dependence structure. Instead, we propose a
conceptual framework based on copulas. Two applications are proposed. The first one concerns the study
of extreme dependence between international equity markets. The second one concerns the analysis of the
East Asian crisis.
4

This paper investigates the dynamic dependence between crude oil prices and stock markets
in ten countries across the Asia-Pacific region during the period from January 4, 2000 to March
30, 2012 by using unconditional and conditional copula models. The model is implemented
using an AR (p)-GARCH (1, 1)-t model for the marginal distributions and constant and
time-varying copulas for the joint distribution. The results show that the dependence between
crude oil prices and Asia-Pacific stock market returns is generally weak, that it was positive
before the global financial crisis, except in Hong Kong, and that it increased significantly in the
aftermath of the crisis. The lower tail dependence between oil prices and Asia-Pacific stock
markets exceeds that of the upper tail dependence, except in Japan and Singapore in the
post-crisis period. Moreover, we show that time-varying copulas best capture the tail
dependence and that taking the tail correlation into account leads to improved accuracy of VaR
estimates. These findings have important implications for investors interested in Asia-Pacific
markets for portfolio diversification, risk management, and international asset allocation.

Abstract
The present research work analyzes whether changes in oil prices at global level affect
the stock market returns in Indian market. Daily closing stock market price data from
National Stock Exchange (NSE) and daily oil prices, for the period beginning from
January 2010 to December 2014, are taken into consideration. VAR model of cointegration is used to test the relation
between the two variables. It is found that there
is no long term integration between oil price and Indian stock index series. Apart from
long term, these series do not even cause each other in short run. Very weak
correlation, about 3.21 percent, was observed in the series that may be due to recent
fall in crude oil prices at global level. Individual/ institutional investors, portfolio
managers, corporate executives, policy makers and practitioners may draw meaningful
conclusions from the findings of the present study while operating in stock markets.
Research like this may help diverse stakeholders in management of their existing
portfolios as their portfolio management strategies may be, up to some extent,
dependent upon such research work. This paper is an attempt to fill the research gap
that exists for Indian stock market in terms of its relationship with global oil prices.

6
Abstract
In this study we apply a series of non-causality tests to determine the direction of the relationship between stock price
indices and exchange rates in emerging market economies. The data set includes monthly observations for the 21
countries included in the MSCI Emerging Markets Index between January 2003 and June 2013. The results indicate
that there is a statistically significant causal interaction between the two variables in 13 of the 21 countries we study.
The direction of the causality varies from country to country and is subject to the joint effect of multiple factors
depending on the particulars of the economy in question.

Abstract: We characterize the response of U.S., German and British stock, bond and foreign exchange
markets to real-time U.S. macroeconomic news. Our analysis is based on a unique data set of highfrequency futures returns for each of
the markets. We find that news surprises produce conditional mean
jumps; hence high-frequency stock, bond and exchange rate dynamics are linked to fundamentals. The
details of the linkages are particularly intriguing as regards equity markets. We show that equity markets
react differently to the same news depending on the state of the U.S. economy, with bad news having a
positive impact during expansions and the traditionally-expected negative impact during recessions. We
rationalize this by temporal variation in the competing “cash flow” and “discount rate” effects for equity
valuation. This finding also helps explain the apparent time-varying correlation between stock and bond
returns, and the relatively small equity market news announcement effect when averaged across
expansions and recessions. Hence, while our results confirm previous unconditional rankings suggesting
that bond markets almost uniformly react most strongly to macroeconomic news, followed by foreign
exchange and then equity markets, importantly when conditioning on the state of the economy the foreign
exchange and equity markets appear equally responsive. Lastly, relying on the pronounced
heteroskedasticity in the new high-frequency data, we also document important contemporaneous
linkages across all markets and countries over-and-above the direct news announcement effects
30

Abstract This paper studies how the financial markets of non-euro area European countries were surprised by the
announcements of unconventional monetary policy of the European Central Bank (ECB). The data sample covers years
from 2007 until 2016, analyzing how bond yields, equity indices, and exchange rates reacted to two types of the ECB’s
policy announcements. To the first type belong those announcements which were the most unexpected by the market,
while to the second type – those which not only surprised the market but were also able to change market expectations
about future monetary policy stance. The results suggest that equity indices of all sample countries and bond yields of
advanced economies were affected mostly by the announcements of the first type. Exchange rates, in turn, reacted to
announcements that caused changes in exp

31
Abstract
This paper estimates the international spillover e¤ects of US Quantitative Easing
(QE) on emerging market economies. Using a Bayesian VAR on monthly US macroeconomic and …nancial data, we …rst identify
the US QE shock with non-recursive identifying
restrictions. This identi…ed shock is then used in another Bayesian VAR for emerging
market economies to infer the international spillover e¤ects on these countries. We …nd
that an expansionary US QE shock has signi…cant, if temporary, e¤ects on …nancial
variables in emerging market economies. It leads to an exchange rate appreciation, a
reduction in long-term bond yields, and a stock market boom. Apart from some positive
e¤ects on equity ‡ows and a reduction in net exports, we do not …nd signi…cant e¤ects
of the US QE shock on other macroeconomic variables of these countries such as output
and consumer prices.

32

Abstract
We estimate international spillover effects of US Quantitative Easing (QE) on emerging
market economies. Using a Bayesian VAR on monthly US macroeconomic and financial
data, we first identify the US QE shock with non-recursive identifying restrictions. We
estimate strong and robust macroeconomic and financial impacts of the US QE shock on
US output, consumer prices, long-term yields, and asset prices. The identified US QE
shock is then used in a monthly Bayesian panel VAR for emerging market economies to
infer the spillover effects on these countries. We find that an expansionary US QE shock
has significant effects on financial variables in emerging market economies. It leads to
an exchange rate appreciation, a reduction in long-term bond yields, a stock market
boom, and an increase in capital inflows to these countries. These effects on financial
variables are stronger for the “Fragile Five” countries compared to other emerging
market economies. We however do not find significant effects of the US QE shock on
output and consumer prices of emerging markets.

33
Abstract
We develop a factor-augmented vector autoregression (FA-VAR)
model to estimate the effects that unexpected changes in U.S. monetary
policy and economic policy uncertainty have on the Chinese housing,
equity, and loan markets. We find the decline in the U.S. policy
rate since the Great Recession has led to a significant increase in
Chinese housing investment. One possible reason for this effect is the
substantial increase in the inflow of ‘‘hot money’’ into China. The
responses of Chinese variables to U.S. shocks at the zero lower bound
are different from those responses in normal times.

37

Abstract
The US quantitative easing (QE) was undoubtedly one of the most notable monetary policies
operated over the last decades. Since its beginning, the QE quickly arose growing concerns all
around the world with respect to adverse externalities that it might have caused in a number of
foreign economies.
The originality of this thesis is focus precisely on the spillover effects of QE on emerging
market economies (EMEs). It aims to find evidences of not only QE spillover effects, but also
differentiation across countries if any. To do so, we conducted an event study on both EMEs
and developed country equity indices at key FOMC’s meetings between 2008 and mid-2015.
Unlike the existing literature, our time period of analysis also covers the effective tapering
and US interest rate hike talks.
As our findings tend to support the existing literature, it can be summarised into the three
following points. First, we find evidences supporting the theory that early Fed announcements
helped to stabilise and strengthen the global financial market, while later statements provoked
higher volatilities in emerging markets. Second, we show that EMEs with stronger
fundamentals were more resilient to counter the effect of both the tapering talks and the actual
tapering. Third, we find that the use of forward policy guidance may have greatly helped to
mitigate the impact on EMEs of the tapering process and more importantly, the rate hike talks.
One must however bear in mind the relatively weak explanatory power and the underlying
limits that our event study imp

38

Abstract We study the impact of the US quantitative easing (QE) on both the emerging and advanced economies,
estimating a global vector error-correction model (GVECM) and conducting counterfactual analyses. We focus on the
effects of reductions in the US term and corporate spreads. First, US QE measures reducing the US corporate spread
appear to be more important than lowering the US term spread. Second, US QE measures might have prevented
episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on the emerging
economies have been diverse but often larger than those recorded in the US and other advanced economies. The
heterogeneous effects from US QE measures indicate unevenly distributed benefits and costs

40

We analyze the impact on cross‐border credit of quantitative easing by the Federal Reserve,
European Central Bank, and Bank of England. Relying on a comprehensive loan‐level data set, we find
that Fed QE strongly boosts cross‐border credit granted to Turkish banks by banks located in the US,
Euro Area and UK, while ECB and BoE QEs work moderately through banks in EA/UK and UK,
respectively. In general QE works at the short end across bank locations and loan currencies, more
strongly for weaker lenders and borrowers, and may have resulted in maturity mismatches at Turkish
banks searching for yield. (99 words)

41
Abstract
A growing literature stresses the importance of the “global financial cycle”, a common
global movement in asset prices and credit conditions, for emerging market economies
(EMEs). It is argued that one of the key drivers of this global cycle is monetary policy in
the U.S., which is transmitted through international capital flows. In this paper, we add to
this discussion and investigate empirically whether U.S. unconventional monetary policy
(UMP) between 2008 and 2014 is related to financial conditions in EMEs, and, whether
it is transmitted through portfolio flows. We find that a U.S. UMP shock significantly
increases portfolio flows from the U.S. to EMEs for almost two quarters. The rise in inflows
is accompanied by a persistent increase in several real and financial variables in EMEs.
Moreover, we find that, on average, EMEs reacted with an easing of their own monetary
policy stance in response to an expansionary U.S. shock.

51
Abstract : This paper used the C-vine copula model to analyze the dependence
between the returns of the Baht/Dollar exchange rates, and two stock prices in
the travel and tourism sectors of the stock market of Thailand, under the second
round and the third round of quantitative easing programs (QE2 and QE3). The
results show that the degree of dependence which is measured by Kendall’s tau
correlation between the Baht/Dollar exchange rates, and the stock prices of AOT
and MINT under the QE2 program is stronger than under the QE3 program.

55

Abstract
This paper investigates whether the degree and the nature of economic and
monetary policy interdependence between the United States and the euro area
have changed with the advent of EMU. Using real-time data, it addresses this
issue from the perspective of financial markets by analysing the effects of
monetary policy announcements and macroeconomic news on daily interest
rates in the United States and the euro area. First, the paper finds that the
interdependence of money markets has increased strongly around EMU.
Although spillover effects from the United States to the euro area remain
stronger than in the opposite direction, we present evidence that US markets
have started reacting also to euro area developments since the onset of EMU.
Second, beyond these general linkages, the paper finds that certain
macroeconomic news about the US economy have a large and significant effect
on euro area money markets, and that these effects have become stronger in
recent years. Finally, we show that US macroeconomic news have become
good leading indicators for economic developments in the euro area. This
indicates that the higher money market interdependence between the United
States and the euro area is at least partly explained by the increased real
integration of the two economies in recent years.
57

Abstract I estimate the interaction between returns on the US stock market (Standard & Poor’s 500 and Dow Jones
Industrial Average), US monetary policy and the Investor Sentiment using a structural vector autoregressive (VAR)
methodology. The different measures of a monetary policy are the rate change (which has been separated into a
expected change and a unexpected change) and the growth rate of money supply (M2). I find that, on average, there is a
significant relationship between an expected change in the fed fund target rate and stock market returns. The full
sample consists of observations spanning from January 2000 to November 2014

62

This paper empirically investigates the following three questions: (i) Do stock returns respond to monetary policy shocks?
(ii) Do stock returns alter the transmission mechanism of monetary policy? and (iii) Does monetary policy systematically
react to stock returns? Existing research based on event studies and Structural Vector Auto-Regressions (SVAR)
documents that stock returns increase significantly following an unanticipated monetary policy expansion. However, this
literature did not explore whether or not stock returns matter for the choice of monetary policy or its propagation
mechanism. In this paper, we use a SVAR that relaxes the restrictions commonly imposed in earlier studies and identify
monetary policy shocks by exploiting the conditional heteroscedasticity of the structural innovations. Applying this
method to U.S. data, we reach a surprising and puzzling conclusion: the answers to the three questions above are No, No,
and No!