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Spillovers of US interest rates: Monetary policy & information effects

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  • Camara, Santiago

Abstract

This paper quantifies the international spillovers of U.S. interest rates by accounting for the “Fed Response to News” channel. Using the identification strategy of Bauer and Swanson (2023a), we decompose monetary policy surprises into two components: a pure U.S. monetary policy shock and a “Fed Response to News” component around FOMC meetings. I find that a U.S. monetary tightening driven by pure policy shocks causes a global recessions, exchange rate depreciation, and tighter financial conditions. In contrast, a tightening driven by the “Fed Response to News” channel leads to an economic expansion, exchange rate appreciation, and looser financial conditions. Ignoring the “Fed Response to News” channel biases estimates, explaining recent atypical findings of expansionary impacts. By isolating these components, I reconcile traditional and recent views of monetary policy spillovers. Results are robust across advanced and emerging economies, alternative methods, and identification strategies.

Suggested Citation

  • Camara, Santiago, 2025. "Spillovers of US interest rates: Monetary policy & information effects," Journal of International Economics, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:inecon:v:154:y:2025:i:c:s0022199625000157
    DOI: 10.1016/j.jinteco.2025.104059
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    Keywords

    Monetary policy; Advanced economies; Emerging markets; International spillovers; Exchange rates; Monetary policy spillovers; “Fed Information Effect”; “Fed Response to News”;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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