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Spillover effects of ECB monetary policy to Sweden
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
2017 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The subject of this thesis is to investigate the spillover effects of ECB monetary policy. The contribution of this thesis is to combine an event study approach with the VAR framework of Sims (1980) to estimate the impact of ECB monetary policy surprises to the Swedish economy. First, ECB policy announcement days are identified and the changes of market interest rates are collected for those days. Second, the changes in the market interest rates are summed within quarters and the resulting variable is used to measure exogenous monetary policy surprises or shocks. Third, the quarterly changes are combined with a dataset of quarterly observations of real and financial variables of the Swedish economy. Last, all variables are used in a VAR model to estimate the dynamic-multiplier functions, which show the impact of monetary policy chocks on real and financial variables. The results suggest that in normal times, the Riksbank increases the interest rate considerably to prevent the krona from depreciating and thus offsetting the ECB monetary policy shocks. The reasons may be to avoid imported inflation and increased net exports that drive production above the natural level, or to offset a simultaneous decrease in the expectations of the future exchange rate. There is however a risk of spurious regression if the time series are drifting upwards or if there is some unobserved confounding factor.  

Place, publisher, year, edition, pages
2017.
Keywords [en]
International monetary transmission, spillover effects, monetary policy surprises, event study, vector autoregression, dynamic-multiplier functions
National Category
Economics
Identifiers
URN: urn:nbn:se:uu:diva-326432OAI: oai:DiVA.org:uu-326432DiVA, id: diva2:1121161
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Available from: 2017-08-18 Created: 2017-07-10 Last updated: 2017-08-18Bibliographically approved

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