The Global Transmission of U.S. Monetary Policy
New Working Paper (Jan 2022)
US monetary policy shapes economic conditions globally due to the dominant role of the dollar in the world economy. We study the propagation of US monetary policy shocks abroad using a state-of-the-art high-frequency identification and a harmonised dataset covering 30 economies and over 150,000 datapoints. A policy tightening has large contractionary effects on both advanced and emerging economies. The propagation via financial variables limits foreign central banks' control over domestic economic conditions by increasing risk premia and by destabilising the medium-long segment of the yield curve. The responses of headline prices abroad are instead shaped by spillovers via commodity markets.