The Puzzling Change in the International Transmission of U.S. Macroeconomic Policy Shocks

Ethan Ilzetzki and Keyu Jin

No 15740, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We demonstrate a dramatic change over time in the international transmission of US monetary policy shocks. International spillovers from US interest rate policy have had a different nature since the 1990s than they did in post-Bretton Woods period. Our analysis is based on the a panel of 21 high income and emerging market economies. Prior to the 1990s, the US dollar appreciated, and ex-US industrial production declined, in response to increases in the US Federal Funds Rate, as predicted by textbook open economy models. The past decades have seen a shift, whereby increases in US interest rates depreciate the US dollar but stimulate the rest of the world economy. Results are robust to several identification methods. We sketch a simple theory of exchange rate determination in face of interest-elastic risk aversion that rationalizes these findings.

Keywords: Monetary; International spillovers; Exchange rates; International financial intermediation (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The puzzling change in the international transmission of U.S. macroeconomic policy shocks (2021)
Working Paper: The puzzling change in the international transmission of U.S. macroeconomic policy shocks (2021)
Chapter: The Puzzling Change in the International Transmission of US Macroeconomic Policy Shocks (2020)
Working Paper: The Puzzling Change In The International Transmission Of U.S. Macroeconomic Policy Shocks (2020)
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