US Monetary Policy and the Global Financial Cycle

NBER Working Paper No. 21722

Issued in November 2015, Revised in March 2019

NBER Program(s):Asset Pricing, Corporate Finance, International Finance and Macroeconomics, Monetary Economics



US monetary policy shocks induce comovements in the international financial variables that characterize the “Global Financial Cycle.” One global factor explaining an important share of the variation of risky asset prices around the world decreases significantly after a US monetary contraction. Monetary tightening in the US leads to significant deleveraging of global financial intermediaries, a decline in the provision of domestic credit globally, strong retrenchments of international credit flows, and tightening of foreign financial conditions. Countries with floating exchange rate regimes are subject to similar financial spillovers.

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Document Object Identifier (DOI): 10.3386/w21722

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