A Welfare‐Based Analysis of International Monetary Policy Spillovers at the Zero Lower Bound.

We study the welfare effects of international monetary policy spillovers at the zero lower bound, focusing on the effects of forward guidance in a large economy ("foreign") on its smaller trading partner ("home") in scenarios motivated by the global financial crisis. We find that foreign forward guidance has an overall prosper‐thy‐neighbor effect on the home economy as long as it increases foreign welfare. This finding holds under alternative assumptions about exchange rate pass‐through or the degree of international financial integration. However, foreign forward guidance may worsen the trade‐off between the stabilization objectives of home monetary policy. [ABSTRACT FROM AUTHOR]