European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

US Monetary Policy in a Globalized World

Jesus Crespo Cuaresma (), Gernot Doppelhofer (), Martin Feldkircher () and Florian Huber
Additional contact information
Jesus Crespo Cuaresma: Department of Economics, Vienna University of Economics and Business
Gernot Doppelhofer: Norwegian School of Economics
Martin Feldkircher: Oesterreichische Nationalbank
Florian Huber: Department of Economics, Vienna University of Economics and Business; Oesterreichische Nationalbank

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

JEL-codes: C30; E52; F41 November 2015

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