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Department of Economics, WU (Wirtschaftsuniversität Wien) Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 209:
US Monetary Policy in a Globalized World

Jesus Crespo Cuaresma (), Gernot Doppelhofer (), Martin Feldkircher () and Florian Huber ()

Abstract: We analyze the interaction between monetary policy in the US and the global economy proposing a new class of Bayesian global vector autoregressive models that accounts for time-varying parameters and stochastic volatility (TVP-SV-GVAR). Our results suggest that US monetary policy responds to shocks to the global economy, in particular to global aggregate demand and monetary policy shocks. On the other hand, US-based contractionary monetary policy shocks lead to persistent international output contractions and a drop in global inflation rates, coupled with rising interest rates in advanced economies and a real depreciation of currencies with respect to the US dollar. We find considerable evidence for heterogeneity in the spillovers across countries, as well for changes in the transmission of monetary policy shocks over time.

Keywords: Global vector autoregression, time-varying parameters, stochastic volatility, monetary policy, international spillovers; (follow links to similar papers)

JEL-Codes: C30,; E52,; F41; (follow links to similar papers)

November 2015

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