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Global Spillovers from Fed Hikes and a Strong Dollar: The Risk Channel

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  • José Cristi
  • Şebnem Kalemli-Özcan
  • Mariana Sans
  • Filiz Unsal

Abstract

We study the international transmission of US monetary policy shocks and a strong US dollar. We show that monetary tightening is linked to a higher risk premium, only in emerging markets, measured by deviations from uncovered interest parity. An appreciation of the US dollar, on the other hand, does not lead to higher risk premia anywhere, even though countries' currencies depreciate vis-à-vis the dollar. Our interpretation is that monetary policy shocks are a better proxy for global financial conditions than the exchange rate movements that may be capturing more fundamental shocks.

Suggested Citation

  • José Cristi & Şebnem Kalemli-Özcan & Mariana Sans & Filiz Unsal, 2024. "Global Spillovers from Fed Hikes and a Strong Dollar: The Risk Channel," AEA Papers and Proceedings, American Economic Association, vol. 114, pages 157-162, May.
    • Handle: RePEc:aea:apandp:v:114:y:2024:p:157-62
    DOI: 10.1257/pandp.20241070
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    References listed on IDEAS

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    1. Mark Gertler & Peter Karadi, 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 44-76, January.
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    Cited by:

    1. Stefan Avdjiev & Leonardo Gambacorta & Linda S. Goldberg & Stefano Schiaffi, 2025. "The Risk Sensitivity of Global Liquidity Flows: Heterogeneity, Evolution and Drivers," NBER Working Papers 33674, National Bureau of Economic Research, Inc.
    2. Stefan Avdjiev & Leonardo Gambacorta & Linda S. Goldberg & Stefano Schiaffi, 2025. "The risk sensitivity of global liquidity flows: heterogeneity, evolution and drivers," Questioni di Economia e Finanza (Occasional Papers) 973, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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