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Ripple effect: Disentangling the global impact web of US monetary policy

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  • Thomas, Lina

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.

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  • Thomas, Lina, 2023. "Ripple effect: Disentangling the global impact web of US monetary policy," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323008036
    DOI: 10.1016/j.frl.2023.104431
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    1. Thomas, Lina, 2023. "The tale of two titans: US and China's distinct impact on the global economy," Finance Research Letters, Elsevier, vol. 58(PC).

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