Information spillovers of US monetary policy

Prasanna Gai and Eric Tong

Journal of Macroeconomics, 2022, vol. 72, issue C

Abstract: We examine the international impact of the information content in US monetary policy. When the Federal Reserve tightens monetary policy, it reveals not only a tightened monetary stance, but also optimism about the economy, raising global output and asset prices as a result. Using a panel dataset of fifty-eight countries over the period 1994–2020, we disentangle “information shocks” from pure monetary shocks and show that (i) while tightening shocks are contractionary for the global economy, the information inherent in a tightening announcement can have expansionary effects; (ii) monetary and information shocks tend to offset each other, softening the net spillovers to the world economy; and (iii) the information inherent in monetary easing lowers output and asset prices. US monetary announcements can thus reveal optimism or pessimism with consequences for global economic activity.

Keywords: Monetary policy spillovers; Information effect; Heteroskedasticity (search for similar items in EconPapers)
JEL-codes: E52 F42 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070422000052
Full text for ScienceDirect subscribers only

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:eee:jmacro:v:72:y:2022:i:c:s0164070422000052

DOI: 10.1016/j.jmacro.2022.103401

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().