Us Monetary Policy Spillovers and Spillbacks (original) (raw)

15 Pages Posted: 9 Jun 2023

Lina Thomas

Stockholm School of Economics; Harvard University, Department of Economics

Abstract

This paper uses a GVAR model to analyze the direct and indirect (via commodity prices and cross-country interactions) spillover effects of US monetary policy on foreign economies and the ensuing spillbacks to the US. A ten basis points cut in the US interest rate directly boosts an average foreign economy's output by 0.06 percentage points, but indirect effects amplify this to 0.47 percentage points. These findings underscore that the recent increase in spillovers is primarily driven by global, rather than US-specific, integration. Indirect cross-country effects are most pronounced in financially open countries, regardless of their exchange rate regime.

Keywords: GVAR, US monetary policy, output spillovers, spillbacks, global financial cycle, Mundellian trilemma, globalization

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