What goes around comes around: How large are spillbacks from US monetary policy?

Max Breitenlechner, Georgios Georgiadis and Ben Schumann

No 2613, Working Paper Series from European Central Bank

Abstract: We quantify spillbacks from US monetary policy based on structural scenario analysis and minimum relative entropy methods applied in a Bayesian proxy structural vector-autoregressive model estimated on data for the time period from 1990 to 2019. We find that spillbacks account for a non-trivial share of the overall slowdown in domestic real activity in response to a contractionary US monetary policy shock. Our analysis suggests that spillbacks materialise as Tobin’s q/cash flow and stock market wealth effects impinge on US investment and consumption. Contractionary US monetary policy depresses foreign sales of US firms, which reduces their valuations/cash flows and thereby induces cutbacks in investment. Similarly, as contractionary US monetary policy depresses US and foreign equity prices, the value of US households’ portfolios is reduced, which triggers a drop in consumption. Net trade does not contribute to spillbacks because US monetary policy affects exports and imports similarly. Finally, spillbacks materialise through advanced rather than emerging market economies, consistent with their relative importance in US firms’ foreign demand and US foreign equity holdings. JEL Classification: F42, E52, C50

Keywords: Bayesian proxy structural VAR models; spillbacks; spillovers; US monetary policy (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: 2435756
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2613~c7e0762caa.en.pdf (application/pdf)

Related works:
Journal Article: What goes around comes around: How large are spillbacks from US monetary policy? (2022)
Working Paper: What goes around comes around: How large are spillbacks from US monetary policy? (2021)
Working Paper: What goes around comes around: How large are spillbacks from US monetary policy? (2021)
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:ecb:ecbwps:20212613

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().