International Transmission of Monetary Shocks: Firm Level Evidence

K. Peren Arin, Ozan Eksi, Neslihan Kaya Eksi and Moo-Sung Kim

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We examine the international transmission of US monetary policy shocks to European firms using high-frequency identification and granular firm-level panel data. Exploiting monetary policy surprises around FOMC announcements combined with firm-level data across eight European economies over 2004-2024, we document a sharp divergence in spillover effects. A contractionary US monetary shock significantly reduces investment rates and sales growth among UK firms, with investment declining by approximately 4% and sales growth by around 0.7-0.8% at peak, with effects persisting for two to four years. By contrast, Continental European firms, whether members of the euro area or independent-currency economies such as Sweden and Switzerland, do not exhibit a significant response. Heterogeneity analysis reveals that large and small UK firms bear broadly similar average burdens, with large firms showing more precisely estimated responses, while leverage does not systematically differentiate transmission. The UK-EU divergence is not explained by the exchange rate regime: the null result for Continental Europe extends to non-euro countries, pointing instead to the exceptional depth of UK-US financial integration, and the centrality of London in global dollar funding markets.

Keywords: monetary policy spillovers; firm-level heterogeneity; international transmission channels (search for similar items in EconPapers)
JEL-codes: E52 F43 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2026-33

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