The Spillover Effects of US Unconventional Monetary Policy on Inflation and Non-Inflation Targeting Emerging Markets

Round 1

Reviewer 1 Report

Comments for author File: Comments.pdf

Author Response

Response to Reviewer’s Report 1

The paper is referred to be proofread by a language editor a language editor’s certificate will be attached.

The figure on page 2 has been numbered appropriately and the countries abbreviations have been written in full. Figure 1 depicts the central bank policy rates of the selected emerging countries and the United States. However, I am willing to remove it if the reviewer wish me to do so?

 Numbers that represent vectors have been bolded and the dummy variable have been explained fully.

The equity prices and the nominal effective exchange rate and their sources have been explained in the paper.

The impulse response functions have been explained appropriately and especially the response of equity prices to UMP.

The theoretical implications and interpretations have been revised and corrected.

All Tables have been correctly labelled in the paper.

The determination of the impulse from the model is discussed.

I have discussed all the impulse responses since it is impossible to delete other rows of impulse when you are using STATA, as they are produced as a picture. However, there is no added value to my study in discussing the other rows of impulse.

I have also added the channels of unconventional monetary policy under the theoretical literature review.

Reviewer 2 Report

Thank you for inviting me to review this paper. I think that the paper has attempted the spillover effects of US unconventional monetary policy on inflation and non-inflation targeting emerging markets, and is an interesting topic. In particular, the evidence obtained from this article can provide valuable references to other countries. The methodology is acceptable. This paper can show the good reference for the readers.

I have some comments that can enhance the quality of the paper, as follows:

1.      Figure 1 should be more detailed, the source, some notes for the figure: Brzl….

2.      Table 19. outbreak had detrimental effect on the economy of emerging and advanced 44 economies in March 2020. I think that this is Figure 1.

3.      1. Literature Review should be section 2

4.      Methodology should be data collection and Methodology.

5.      This paper should have the theoretical framework before the section methodology.

6.      Explaining the dummy variable for US unconventional monetary policy (UNCOV)? Which value does this dummy variable get?

7.      Explaining why you use A panel VAR Model in this study? How about other methods?

8.      The descriptive statistics should be performed.

9.      You should discuss the robustness of the results. It is too important to confirm the results are acceptable.

Based on comments above, I made the decision: revisions for this paper

Thank you

Thank you for inviting me to review this paper. I think that the paper has attempted the spillover effects of US unconventional monetary policy on inflation and non-inflation targeting emerging markets, and is an interesting topic. In particular, the evidence obtained from this article can provide valuable references to other countries. The methodology is acceptable. This paper can show the good reference for the readers.

I have some comments that can enhance the quality of the paper, as follows:

1.      Figure 1 should be more detailed, the source, some notes for the figure: Brzl….

2.      Table 19. outbreak had detrimental effect on the economy of emerging and advanced 44 economies in March 2020. I think that this is Figure 1.

3.      1. Literature Review should be section 2

4.      Methodology should be data collection and Methodology.

5.      This paper should have the theoretical framework before the section methodology.

6.      Explaining the dummy variable for US unconventional monetary policy (UNCOV)? Which value does this dummy variable get?

7.      Explaining why you use A panel VAR Model in this study? How about other methods?

8.      The descriptive statistics should be performed.

9.      You should discuss the robustness of the results. It is too important to confirm the results are acceptable.

Based on comments above, I made the decision: revisions for this paper

Thank you

Author Response

Response to Reviewer’s Report 2

Figure 1 have been explained, the source has been included and the abbreviations of the countries have been described. In addition Figure 1 have been discussed briefly.

The typing errors: “Table 19” instead of “COVID-19” and other related grammar errors have been rectified as the paper has been referred to a language editor and the editor’s certificate has been attached.

The paper has been restructured and the theoretical framework has been included.

The dummy variable has been explained

The descriptive statistics have been included in the Appendix

The robustness of the results has been discussed.

Reviewer 3 Report

Review: The spillover effects of US unconventional monetary policy on inflation and non-inflation targeting emerging markets

This paper provides a comprehensive analysis of the spillover effects of Fed’s unconventional monetary policy on both inflation and non-inflation targeting emerging economies. The authors investigate “both the post credit crunch crises and the COVID-19 US spillover effects of large assets purchase programs to the selected emerging markets” (p.2). Nevertheless, it is not clarified which are the main research hypotheses tested and if they are confirmed or not.

 

 

Literature on unconventional monetary policy effects on markets is rich. So I suggest to extend the literature review part by including relevant papers. Examples are given below:

 

·         Evgenidis, A., & Papadamou, S. (2021). The impact of unconventional monetary policy in the euro area. Structural and scenario analysis from a Bayesian VAR. International Journal of Finance & Economics, 26(4), 5684-5703.

·         Fassas, A. P., Kenourgios, D., & Papadamou, S. (2021). US unconventional monetary policy and risk tolerance in major currency markets. The European Journal of Finance, 27(10), 994-1008.

·         Papadamou, S., Siriopoulos, C., & Kyriazis, N. A. (2020). A survey of empirical findings on unconventional central bank policies. Journal of Economic Studies, 47(7), 1533-1577.

 

 

Additionally, they mention that “It is the only study that use a dummy variable in a panel vector autoregressive” (p.2) However, it is not obviously clarified how this dummy variable is used. It is generally stated that it is used “as a proxy variable for unconventional monetary policy post credit crunch and during COVID-19” (p.2). Further explanation about this technique is proposed.

 

 

Furthermore, in the section “estimation results” is stated that “In the following two subsections the impulse response functions (IRFs) and the forward error variance decomposition (FEVD) of the non-inflation targeting (Model 2) and the inflation targeting (Model 1) model are presented”( p.5). Nevertheless, the FEVD estimations are missing. Therefore, it is recommended the FEVD results to be presented in order to test whether the benchmark results are confirmed.   

 

Moreover, in their empirical section interesting are the findings of their estimations. However, the following minor points should be dealt with:

·         How was the selection of the countries been settled?  Why the group of emerging countries contains those economies? Did they use any criteria about the selection of the counties? It is highly recommended a further explanation about this issue.

·         Furthermore, in order to capture the spillover effects about the Covid-19 an extension of the sample is proposed since the sample is on a quarterly frequency and the existing observations are only three.

·         Last, “the equity prices decrease in the short-run and increase in the long-run in response to the shocks of US unconventional monetary policy” (p.9). Nevertheless, these results are in contrast to the relative literature. How do the authors interpret this finding? An extensive explanation about this outcome is highly suggested.

 

Author Response

Response to editor’s comment 3

The hypothesis of the paper is included in paragraph 1 of the introduction.

There are recent articles that has been cited even from the year 2022, the suggested articles to will be added to the literature review.

The dummy variable has been explained appropriately.

The selection of countries is according to inflation and non-inflation targeting emerging countries since the study attempt to compare their response to unconventional monetary policy. The researcher preferred to use less developed economies, however, he was constraint by the availability of data. It is assumed that Inflation targetor’s has well developed financial institution and transparent monetary policy relative to non-inflation targeting countries.

The justification of the decrease of the equity prices in the short-run and increase in the long-run has been provided in reference to existing empirical literature.

In attempting to increase the sample size some variables for other countries does not go up to the year 2022.

Round 2

Reviewer 1 Report

In Figure 3 you found that UNCOV has an insignificant impact on DBA. Also, figure 4 shows that the equity prices decrease in the short- run and increase in the long- run in response to the shocks of the US unconventional monetary policy. Based on these two figures, the impact of the US unconventional monetary policy on equity prices is uncertain. You admit on page 9 that your finding does not support Bhattarai and Chatterjee, 2018; Sugimoto and Matsuki, 2019; Tillmann, 2016; and Tran and Pham, 2020).

But, in the abstract, you mention that US unconventional monetary policy increases equity prices and this result is statistically significant, robust, and consistent with previous studies. 

Your writings in the abstract contradict your writing in explaining Figures 3-4. Please remove the contradiction. 

In my first round of comments (comment 9), I asked to explain how the impulse response function is determined (the explanation is: The impulse response is the dynamic change in Zit for a unit change in ?jt in your VAR model). You said you explained it, but I don't see it or I missed it. On what page and in what paragraph did you include it? 

Author Response

The paper has been proof read by a language editor

Author Response File: Author Response.docx

Reviewer 2 Report

Dear Sir,

I think that this revised paper is good. It should be considered for publication.

However, I think that the name of Figure 3 and 4 should be changed. Both names are accordingly same.

Thank you.

Author Response

The paper has been proof read by a language editor

Author Response File: Author Response.docx

Reviewer 3 Report

The paper covered succesfully my previous comments, therefore I suggest publication. 

Author Response

The paper has been proof read by a language editor

Author Response File: Author Response.docx