U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data

Elif Arbatli Saxegaard, Melih Firat, Davide Furceri and Jeanne Verrier

No 2022/191, IMF Working Papers from International Monetary Fund

Abstract: We examine three main channels through which U.S. monetary policy shocks affect firm investment in foreign countries: (1) the balance sheet channel; (2) the financial channel of the exchange rate; and (3) the trade channel. For this purpose, we use quarterly firm-level data for 63 advanced economies (AEs) and emerging market and developing economies (EMDEs) over 1996-2016. Our results suggest an important and independent role for all three key channels. U.S. monetary policy shocks have larger effects on investment for firms that are more leveraged (balance sheet channel), for firms that have a higher share of debt in foreign currency (financial channel of the exchange rate), and for firms that operate in sectors with higher export dependence (trade channel). Back-of-the-envelope calculations suggest that the balance sheet channel is the most important channel of transmission of U.S. monetary policy shocks on aggregate firm investment.

Keywords: U.S. monetary policy shocks; international spillovers; investment; firm heterogeneity.; shock spillover; balance sheet channel; spillover channel; trade channel; level data; Financial statements; Exchange rates; Spillovers; Exports; Exchange rate arrangements; Global; monetary policy shock; export dependence ratio; investment data; balance sheet strength; Asia and Pacific (search for similar items in EconPapers)
Pages: 69
Date: 2022-09-16
New Economics Papers: this item is included in nep-fdg, nep-int and nep-mon
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Citations: View citations in EconPapers (5)

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