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The international spillovers of synchronous monetary tightening

Author

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  • Caldara, Dario
  • Ferrante, Francesco
  • Iacoviello, Matteo
  • Prestipino, Andrea
  • Queralto, Albert

Abstract

We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy.

Suggested Citation

  • Caldara, Dario & Ferrante, Francesco & Iacoviello, Matteo & Prestipino, Andrea & Queralto, Albert, 2024. "The international spillovers of synchronous monetary tightening," Journal of Monetary Economics, Elsevier, vol. 141(C), pages 127-152.
    • Handle: RePEc:eee:moneco:v:141:y:2024:i:c:p:127-152
    DOI: 10.1016/j.jmoneco.2023.10.017
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    More about this item

    Keywords

    Monetary policy; Inflation; International spillovers; Financial frictions; Open economy macroeconomics; Panel data estimation;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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