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US monetary policy spillovers to the euro area

Author

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  • Riccardo Degasperi

    (Bank of Italy)

  • Fabrizio Venditti

    (Bank of Italy)

Abstract

We review the literature on US monetary policy spillovers, focusing on the channels of transmission that are most relevant for the euro area. Since the 2000s, the literature has increasingly stressed the role of financial markets, international trade and commodity prices in the transmission of US monetary policy and de-emphasized that of the bilateral exchange rate. We also present updated empirical evidence on the effects of US monetary policy on the euro-area economy, based on structural vector autoregressions and high-frequency identification of US monetary policy shocks. A rate hike by the Federal Reserve tightens financial conditions, depresses global activity, appreciates the US dollar and lowers the price of oil. The effects on the euro-area economy are recessionary and disinflationary, despite a depreciation of the euro.

Suggested Citation

  • Riccardo Degasperi & Fabrizio Venditti, 2024. "US monetary policy spillovers to the euro area," Questioni di Economia e Finanza (Occasional Papers) 891, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_891_24
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    More about this item

    Keywords

    monetary policy; trilemma; exchange rates; monetary policy spillovers; international transmission; high-frequency identification;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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