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How Much Can the Fed’s Tightening Contract Global Economic Activity?

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Abstract

What types of foreign firms are most affected when the Federal Reserve raises its policy rate? Recent empirical research used cross-country firm level data and information on input-output linkages and finds that the impact on sales and investment spending is largest in sectors with exposure to trade in intermediate goods. The research also finds that financial factors drive differences, with U.S. monetary policy spillovers having a much smaller impact on firms that are less financially constrained.

Suggested Citation

  • Julian di Giovanni & Neel Lahiri, 2023. "How Much Can the Fed’s Tightening Contract Global Economic Activity?," Liberty Street Economics 20230213, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:95636
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    More about this item

    Keywords

    U.S. monetary policy spillovers; Foreign firms; international production linkages; financial constraints;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F0 - International Economics - - General

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