So, for instance, a home country A at the zero lower bound may initiate Quantitative Easing (QE), and a foreign country B may respond by cutting interest rates to avoid capital inflows and exchange rate appreciation. The spillover effects of QE would be based on B’s welfare if QE was not undertaken versus B’s welfare after QE is initiated and it responds.
Overall, whether policies are rated Red, Green, or Orange would depend on a number of factors such as the time dimension; stage of the financial and business cycle in the home and foreign countries; whether the policy action constitutes a booster shot to jump start the economy or gives only a mild boost and has to be employed for a sustained period; whether standard transmission channels are clogged to warrant the use of unconventional policies; whether the foreign country has room to adopt buffering policies; whether the spillovers impact poor countries which have weak institutions and less room to respond, etc.