Cross-country Transmission Effect of the U.S. Monetary Shock under Global Integration

Yoshiyuki Fukuda, Yuki Kimura, Nao Sudo and Hiroshi Ugai
Additional contact information
Yoshiyuki Fukuda: Bank of Japan
Yuki Kimura: Bank of Japan
Hiroshi Ugai: Bank of Japan

No 13-E-16, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Monetary policy shocks in the United States are considered a significant cause of economic fluctuations in other countries. We study empirically how the spillover effects of such shocks have changed as a result of the recent deepening of global integration. We consider shocks to the Federal Funds rate and examine how domestic production in a number of advanced, Latin American, and Asian countries were affected by these shocks during the 1990s and 2000s. We show that contractionary U.S. monetary policy shocks reduced domestic production in most of the sampled countries during the 1990s. During the 2000s, by contrast, the adverse effects were moderated. To explore the reasons behind the weakened spillover effects, we construct a DSGE model and examine the theoretical implications of the recent changes in economic structure, including global integration. In addition, we estimate response of trade and financial variables as well as policy instruments to U.S. monetary policy shocks. Our model combined with the empirical exercises suggests that, despite being enhanced by deepened trade integration, spillover effects may be decreasing due to a decline in the relative importance of the U.S. economy, and to regime switches in domestic monetary and exchange rate policy in non-U.S. countries. Though we empirically find a sign of short-run financial contagion during the 2000s, its effect upon the real economy was minor, possibly reflecting its low persistence.

Keywords: U.S. Monetary Policy; Spillover Effect; Financial and Trade Linkages (search for similar items in EconPapers)
Date: 2013-11-26
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.boj.or.jp/en/research/wps_rev/wps_2013/data/wp13e16.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:13-e-16

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().