The Global Transmission of U.S. Monetary Policy
New Working Paper (Sep 2024)
US monetary policy impacts global economic conditions, with tightenings causing recessions worldwide. We employ a state-of-the-art identification of monetary policy shocks and a comprehensive dataset encompassing 30 advanced and emerging economies to estimate the international spillover effects of US monetary policy. We report the existence of a novel transmission channel, mediated by commodity and oil prices, by which tightenings exert downward pressure on inflation globally. Furthermore, we find that financial channels are crucial for the transmission to real variables, as they hamper foreign central banks' control over domestic conditions by impairing the transmission of counter-cyclical monetary policy to the medium-long end of the yield curve.