Do the breadth and intensity of the tightening of monetary conditions affect their impact on the global economy?

2021 and 2022 saw one of the most across-the-board and abrupt episodes of the tightening of global monetary conditions in history. This article examines the consequences of the synchronisation and abrupt nature of this tightening. First, synchronisation complicates the reduction of inflation through the exchange rate channel of monetary policy which, unlike other channels, is zero-sum in global terms. Theoretically, an uncoordinated "competition" for a share of this sum may cause central bankers to engage in excessive global tightening. However, in practice, central banks do not pass on inflation to each other through attempts of making their own currency exchange rates stronger, but rather dampen the spillover effects of US monetary policy, which has a huge effect on global financial conditions. Second, the article demonstrates that the unusual pace of tightening may not pass through to the real economy proportionately quickly. A slower transmission may tempt central banks to intervene again and tighten monetary conditions too much at the end.