US monetary policy spillovers to the euro area

Riccardo Degasperi () and Fabrizio Venditti ()
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Fabrizio Venditti: Bank of Italy

No 891, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We review the literature on US monetary policy spillovers, focusing on the channels of transmission that are most relevant for the euro area. Since the 2000s, the literature has increasingly stressed the role of financial markets, international trade and commodity prices in the transmission of US monetary policy and de-emphasized that of the bilateral exchange rate. We also present updated empirical evidence on the effects of US monetary policy on the euro-area economy, based on structural vector autoregressions and high-frequency identification of US monetary policy shocks. A rate hike by the Federal Reserve tightens financial conditions, depresses global activity, appreciates the US dollar and lowers the price of oil. The effects on the euro-area economy are recessionary and disinflationary, despite a depreciation of the euro.

Keywords: monetary policy; trilemma; exchange rates; monetary policy spillovers; international transmission; high-frequency identification (search for similar items in EconPapers)
JEL-codes: C3 E5 F3 F4 (search for similar items in EconPapers)
Date: 2024-11
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_891_24

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