The Global Financial Cycle and US Monetary Policy in an Interconnected World

We assess the international spillovers stemming from identified US conventional and unconventional monetary policy shocks by estimating a global VAR model which exploits panel variation on several macroeconomic and financial indicators for a set of advanced and emerging economies. We find that US monetary policy significantly drives equity prices worldwide and, when working via unconventional measures, it also leads to a generalized comovement in short- and long-term rates across countries. Both macroeconomic and financial spillovers are sizable, and in some instances even larger than the effects on the U.S. economy. Countries whose currency is anchored to the US Dollar feature larger spillovers, but this relationship is weak due to the high uncertainty surrounding the estimated effects.