Unconventional Monetary Policy in a Small Open Economy

We investigate unconventional monetary policy in a small open economy using shadow interest rates to capture policy at the zero lower bound (ZLB) in a Bayesian structural vector autoregressive model for Canada - a useful case where foreign shocks can be proxied by the U.S. alone. We estimate that during the ZLB period, on average, Canadian unconventional monetary policy increased output by 0.13 percent, while US unconventional monetary policy increased Canadian output by 1.2 percent on average. Results demonstrate the effectiveness of domestic unconventional monetary policy and the strong spillovers from foreign unconventional monetary policy in a small open economy.