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U.S. monetary policy and the predictability of global economic synchronization patterns

Author

Listed:
  • Mehmet Balcilar

    (Eastern Mediterranean University
    OSTIM Technical University)

  • Riza Demirer

    (Southern Illinois University Edwardsville)

Abstract

This paper proposes output gap dispersion as a measure of economic synchronization patterns across the world economies. Utilizing a novel, multivariate quantile causality testing methodology and data from a set of 45 advanced and emerging nations, we present evidence of significant causal effects of U.S. monetary policy measures over synchronization patterns across the advanced and emerging economy business cycles, even after controlling for various risk and uncertainty proxies. While U.S. monetary policy actions cause significant interdependence in business cycles across advanced economies, we find that the Fed’s policy decisions also contribute to uncertainty in industrial output patterns. U.S. monetary policy actions are also found to have significant causal effects on the dispersion of emerging market output gaps at low quantiles, suggesting that policy actions by the U.S. Fed drive synchronized economic activity across emerging nations. The findings have significant implications, particularly for policy makers in emerging economies, when it comes to the coordination of their domestic as well as regional monetary policies in response to monetary policy shocks from the U.S.

Suggested Citation

  • Mehmet Balcilar & Riza Demirer, 2022. "U.S. monetary policy and the predictability of global economic synchronization patterns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(3), pages 473-492, July.
  • Handle: RePEc:spr:jecfin:v:46:y:2022:i:3:d:10.1007_s12197-022-09577-9
    DOI: 10.1007/s12197-022-09577-9
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    Cited by:

    1. Afees A. Salisu & Rangan Gupta & Riza Demirer, 2022. "The financial US uncertainty spillover multiplier: Evidence from a GVAR model," International Finance, Wiley Blackwell, vol. 25(3), pages 313-340, December.

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    More about this item

    Keywords

    Output gap; Business cycles; Quantile causality; Predictability;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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