yields in the euro area. since bond supplies directly affect the term premium, this occurs even when short - term rates are unchanged. in turn, the international portfolio re - balancing channel leads to a reduction in term premia and long - term yields in the rest of the world, as the ecb ’ s asset purchases increase through portfolio rebalancing the demand for rest - of - the - world long - term bonds. of course, the degree of substitutability across bonds of different maturities and origins is crucial for the magnitude of spillovers from central bank asset purchases through the portfolio re - balancing channel. for example, a relatively low elasticity of substitution between short - and long - term bonds implies a sizeable domestic effect of the ecb ’ s asset purchases on term premia, whereas a relatively high elasticity of substitution between domestic and rest - of – the - world bonds is key for generating large spillovers from to rest - of - the - world term premia. in fact, there is empirical evidence suggesting that portfolio re - balancing is an important conduit for spillovers from central bank asset purchases in large economies. the financial channel of exchange rates and cross - border portfolio re - balancing are just two dimensions of a more complex of the more broadly defined financial channel of monetary policy spillovers, and quite some research – including at the ecb – is under way to shed more light on how monetary policy in systemic economies affects the rest of the world. third, the traditional exchange rate channel of monetary policy spillovers operates through changes in the relative prices of domestic and foreign goods. a monetary policy tightening generally causes the exchange rate to appreciate. to the extent that the relative prices of domestic and foreign goods are affected by the exchange rate appreciation, a monetary policy tightening at home elicits expenditure switching at home and abroad. expenditure switching under the exchange rate channel of monetary policy spillovers thus rotates demand at home and abroad, but where and in which direction the rotation takes place depends on a string of factors. two factors that have received some attention recently are the invoicing currency of exports. if export prices are sticky in domestic currency, an exchange rate appreciation makes domestic goods less competitive in world markets, shifting expenditure abroad and at home away from domestic goods. this traditional analysis is based on the mundellian assumption of “ producer currency pricing ” ( pcp ). discussions about the external effects of policy actions in politics and the media are typically implicit

: gopinath, g. ( 2016 ), “ the international price system. ” jackson hole symposium proceedings, eurostat and ecb staff calculations. note : the data generally cover the time period from 1995 to 2012. ae = advanced economies ; eme = emerging market economies. there is some support for the model predictions of the importance of us dollar invoicing for monetary policy spillovers. the degree of exchange rate pass - through to import prices from bilateral changes in the us dollar is high, while movements of effective exchange rates excluding the us dollar are muted ( chart 16 ). chart 16 exchange rate pass - through to import prices ( y - axis coefficient estimates with 90 % confidence bands ; x - axis : years ) sources : bis, oecd and ecb staff calculations. notes : the chart is based on coefficients estimated in a regression of the changes in import prices on the changes in exchange rates and other controls using quarterly data and including country and time fixed effects. all variables are in logs. import and export prices are calculated as unit value indices and include trade in both goods and services. exchange rates are defined such that an increase implies a depreciation of the domestic currency ( in effective terms or against the us dollar ). the neer excluding the us dollar is obtained as the residual from a country - by - country regression of the neer on the bilateral exchange rate with the us dollar. furthermore, ecb research suggests that the output effects from a us dollar appreciation are larger for an economy receiving spillovers that features a higher export - import us dollar invoicing share differential : that is, a higher share of exports but a lower share of imports invoiced in us dollars ( chart 17 ). the mechanism at play is that net exports suffer more from a us dollar appreciation if a large share of the exports of the economy receiving the spillovers is invoiced in us dollars, since it implies stronger expenditure switching in its trading partners away from imports from the economy towards domestically produced goods in the rest of the world. in turn, net exports suffer less from us dollar appreciation if a large share of the imports of the economy receiving the spillovers is invoiced in us dollars, since it implies stronger expenditure switching away from imports from the rest of the world towards domestically produced goods. chart 17 var estimates of the global real gdp spillovers from us dollar appreciation and export - import us dollar invoicing share differentials source : georgiadis, g