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Monetary Policy in the Capitals of Capital

Rey, H, Gerko, E
  Latest Draft: 12 Jul 2017,

The importance of financial markets and international capital flows have increased greatly since the 1990s. How does this a ffect the e ffectiveness of monetary policy? We analyse the transmission of monetary policy in two important financial centres, the United States and the United Kingdom. Studying the responses of mortgage and corporate spreads we find evidence in favour of an important financial channel in both countries. Our identi fication strategy allows us to study the eff ects of the policy rates and of forward guidance, broadly de fined. We also analyse international fi nancial spillovers, which we find to be asymmetric.

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Helene Rey thanks the ERC for financial support (ERC Advanced Grant 695722)

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