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Spillovers from US monetary policy: evidence from a time varying parameter global vector auto‐regressive model
Author(s) -
Crespo Cuaresma Jesús,
Doppelhofer Gernot,
Feldkircher Martin,
Huber Florian
Publication year - 2019
Publication title -
journal of the royal statistical society: series a (statistics in society)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.103
H-Index - 84
eISSN - 1467-985X
pISSN - 0964-1998
DOI - 10.1111/rssa.12439
Subject(s) - economics , monetary policy , monetary economics , financial crisis , equity (law) , financial integration , exchange rate , liberian dollar , international economics , macroeconomics , financial market , finance , political science , law
Summary The paper develops a global vector auto‐regressive model with time varying parameters and stochastic volatility to analyse whether international spillovers of US monetary policy have changed over time. The model proposed enables us to assess whether coefficients evolve gradually over time or are better characterized by infrequent, but large, breaks. Our findings point towards pronounced changes in the international transmission of US monetary policy throughout the sample period, especially so for the reaction of international output, equity prices and exchange rates against the US dollar. In general, the strength of spillovers has weakened in the aftermath of the global financial crisis. Using simple panel regressions, we link the variation in international responses to measures of trade and financial globalization. We find that a broad trade base and a high degree of financial integration with the world economy tend to cushion risks stemming from a foreign shock such as US tightening of monetary policy, whereas a reduction in trade barriers and/or a liberalization of the capital account increase these risks.