The Spill-back and Spillover Effects of US Monetary Policy: Evidence on an International Cost Channel

Yao Li, Lingfei Lu, Shang-Jin Wei and Jingbo Yao

No 33811, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical “spill-back” pattern differs from the predictions of typical open-economy macro models. We also document a new empirical "spillover" effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel—their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions.

JEL-codes: E3 E5 F14 F40 (search for similar items in EconPapers)
Date: 2025-05
Note: IFM ME
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