Determinants of global spillovers from US monetary policy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper assesses the global spillovers from identified US monetary policy shocks in a global VAR model. US monetary policy generates sizable output spillovers to the rest of the world, which are larger than the domestic effects in the US for many economies. The magnitude of spillovers depends on the receiving country's trade and financial integration, de jure financial openness, exchange rate regime, financial market development, labor market rigidities, industry structure, and participation in global value chains. The role of these country characteristics for the spillovers often differs across advanced and non-advanced economies and also involves non-linearities. Furthermore, economies which experience larger spillovers from conventional US monetary policy also displayed larger downward revisions of their growth forecasts in spring 2013 when the Federal Reserve upset markets by discussing tapering off quantitative easing. The results of this paper suggest that policymakers could mitigate their economies' vulnerability to US monetary policy by fostering trade integration as well as domestic financial market development, increasing the flexibility of exchange rates, and reducing frictions in labor markets. Other policies-such as inhibiting financial integration, industrialisation and participation in global value chains-might mitigate spillovers from US monetary policy, but are likely to reduce long-run growth. helped economies to raise their potential growth similarly, capital market integration and financial openness allows economies to reap collateral benefits from financial globalisation Clearly, a completely closed economy will not experience any spillovers whatsoever, but is likely to grow more slowly in the long run. In these cases, the trade-offs should be carefully considered before any measures are taken.

Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks

“…For the US we fix ϑ us = 0.2 and w us,j = 0.5, reflecting our assumption of the US being the core economy. The dynamics of domestic and foreign variables in response to monetary policy shocks under the two polar parameterisations are qualitatively plausible and-in particular for the "financial spillovers" parametrisation-consistent with the findings on monetary policy spillovers in the empirical literature (see Figures 7 and 8 in Appendix C.2 as well as Dedola et al, 2015;Feldkircher and Huber, 2015;Banerjee et al, 2016;Chen et al, 2016;Georgiadis, 2016). Figure 1 presents the distribution of the cross-country correlations between the monetary policy shock estimates for the non-core economies of the euro area and Japan obtained from feeding the data simulated from the multi-country data-generating process into the corresponding single-country versions across the 1,000 replications of the Monte Carlo experiment.…”

“…Indeed, a growing body of empirical research provides evidence that financial interlinkages play a critical role in the transmission of shocks across economies (Ehrmann and Fratzscher, 2003, 2005, 2009Ehrmann et al, 2011;Hale et al, 2016). Similarly, several studies document the sizable impact of-in particular USmonetary policy on output and inflation in the rest of the world that materialises through financial spillover channels (Kim, 2001;Canova, 2005;Nobili and Neri, 2006;Dedola et al, 2015;Feldkircher and Huber, 2015;Georgiadis, 2016). And related work even suggests that economies' financial markets are subject to a global financial cycle, which is argued to materialise in variations in global risk aversion and to be driven by US monetary policy (Bekaert et al, 2013;Ghosh et al, 2014;Bruno and Shin, 2015b,a;Miranda-Agrippino and Rey, 2015;Passari and Rey, 2015;Rey, 2015).…”

Yields on Sovereign Debt, Fragmentation and Monetary Policy Transmission in the Euro Area: A GVAR Approach

“…In some cases, the sign is different than what would be expected. This result is consistent with that of Burriel and Galesi (2015) and Georgiadis (2015). These authors attribute the higher pass through of monetary policy in these countries to better bank capitalization and better institutions, as shown in higher spots on rankings like ease of doing business.…”

On the Determinants of Output Co-Movements in the CEMAC Zone: Examining the Role of Trade, Policy Channel, Economic Structure and Common Factors

“…Source: World Development Indicators, Author calculations Note: Cyclically components are computed using the filter developed by Baxter and King (1999) We run another regression by introducing interaction terms between landlocked situation and trade with in order to investigate the role of non-linearities similarly to Georgiadis (2015). Table 2 reports the results.…”