International effects of euro area forward guidance

This paper explores the domestic and international effects of an increase in observed
interest rates (conventional monetary policy) and expected interest rates (forward
guidance). We find significant spillovers to a broad range of countries when both are
subject to a tightening shock: Output growth and inflation decelerate and equity returns
decline. Currencies of euro area neighboring countries tend to depreciate against the euro.
A tightening forward guidance shock triggers more persistent effects on euro area and
international interest rates. We find that international effects vary over the sample period
when either interest rates are shocked.