Georgiadis – Global spillovers from multi- dimensional US monetary policy

1 February 2024
Publication Type: Workshop Paper
JEL Code: C50, E42, E52

We estimate spillovers from US monetary policy for different measures in the Federal Reserve’s toolkit. We make use of novel measures of exogenous varia- tion in conventional rate policy, forward guidance and large-scale asset purchases (LSAPs) based on high-frequency asset-price surprises around Federal Open Mar- ket Committee meetings. The identification relies on relatively weak assumptions and accounts for the possible presence of residual endogenous components—such as central bank information effects—in these monetary policy surprises. We find that: (i) forward guidance and LSAPs trigger much larger spillovers than conven- tional rate policy; (ii) spillovers transmit predominantly through financial chan- nels centering on global investors’ risk appetite and manifest in changes in equity prices, bond spreads, capital flows and the dollar exchange rate; (iii) LSAPs trigger immediate international portfolio re-balancing between US and advanced- economy bonds, but generally entail only rather limited term premium spillovers; (iv) both forward guidance and LSAPs entail trade-offs for emerging-market- economy central banks, either between stabilizing output and prices or between additionally ensuring financial stability in terms of capital inflows.

Keywords: Monetary policy spillovers, US monetary policy shocks, central bank information effects, high-frequency identification.
JEL-Classification: F42, E52, C50.

25 January 2024


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