The transmission of the US monetary policy: an empirical investigation
In this paper Degasperi et al. provide empirical estimates of the impact of US monetary policy across the globe. They employ a state-of-the-art high-frequency identification (HFI) obtained from intraday price revisions of federal funds futures in tight windows around policy announcements. They construct a large global dataset including a comprehensive set of macroeconomic and financial variables covering the US, 15 advanced and 15 emerging economies, and a set of global indicators spanning the period 1990:1 to 2018:9. They then identify the effects of a US monetary policy shock in a large-scale Bayesian SVAR-IV/Proxy SVAR incorporating 30 global and US macroeconomic indicators. Some of their interesting findings are:
- Following US shocks, the ‘median’ advanced economy displays strong responses in output and CPI, which move in the same direction as the US counterparts;
- The ‘median’ emerging economy responds similarly to the advanced counterpart;
- The responses of output and stock prices of the US, the global economy, and third countries are more persistent in a tightening than in a loosening.
The Global Transmission of U.S. Monetary Policy
Authors: Riccardo Degasperi, Seokki Simon Hong, Giovanni Ricco
From: University of Warwick
The transmission of the Chinese foreign policy
Miranda-Agrippino et al. examine the different ways US and Chinese monetary policies are being transmitted in the global economy. They use a monetary policy index that summarizes the policy stance of the People’s Bank of China, and can be regarded as the analog of the Federal Funds Rate. They identify Chinese monetary policy shocks by postulating a Taylor-type rule for the monetary authority and assuming a delayed response for most of the global aggregates. They find that while both US and Chinese monetary policies have large spillovers on the global economy, the channels of transmission differ:
US shocks propagate predominantly through financial markets: financial conditions, risk indices, asset prices, private liquidity, and international capital flows all respond very significantly. […] Conversely, global financial variables do not appear to be the primary transmission channel when one focuses instead on Chinese monetary policy shocks. In this case, it is the contraction of domestic demand and prices that drags down global activity. Commodity prices contract with some delay, but very significantly. Global asset prices are essentially insensitive for several months, after which they contract presumably as a result of the fall in commodity prices, and in global growth. Similarly, financial conditions significantly tighten for major commodity exporters, while they are largely unaffected at the global level. Commodity producers also experience capital flights and disinvestment. Global trade, and global growth as a consequence, contract. Through global value chains, these repercussions ripple all the way into Europe: German output, imports and exports all suffer severe contractions.
Global Footprints of Monetary Policies
Authors: Silvia Miranda-Agrippino, Tsvetelina Nenova, Hélène Rey
From: Bank of England, London Business School
