The Transmission of International Monetary Policy Shocks on Firms' Expectations

Serafin Frache, Rodrigo Lluberas, Mathieu Pedemonte and Javier Turen

No 23-01, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Motivated by the dominant role of the US dollar, we explore how monetary policy (MP) shocks in the US can affect a small open economy through the expectation channel. We combine data from a panel survey of firms' expectations in Uruguay with granular information about firms' debt position and total imports on a monthly basis. We show that a contractionary MP shock in the US reduces firms' inflation and cost expectations in Uruguay. This result contrasts with the inflationary effect of this shock on the Uruguayan economy, suggesting uncertainty about the policy regime. We discuss the issues and challenges of this expectation channel.

Keywords: Firms' Expectations; Global Financial Cycle; Monetary Policy Spillovers (search for similar items in EconPapers)
JEL-codes: D84 E31 E58 E71 F41 (search for similar items in EconPapers)
Pages: 55
Date: 2023-01-04
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:95429

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DOI: 10.26509/frbc-wp-202301

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