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Information spillovers of US monetary policy

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  • Gai, Prasanna
  • Tong, Eric

Abstract

We examine the international impact of the information content in US monetary policy. When the Federal Reserve tightens monetary policy, it reveals not only a tightened monetary stance, but also optimism about the economy, raising global output and asset prices as a result. Using a panel dataset of fifty-eight countries over the period 1994–2020, we disentangle “information shocks” from pure monetary shocks and show that (i) while tightening shocks are contractionary for the global economy, the information inherent in a tightening announcement can have expansionary effects; (ii) monetary and information shocks tend to offset each other, softening the net spillovers to the world economy; and (iii) the information inherent in monetary easing lowers output and asset prices. US monetary announcements can thus reveal optimism or pessimism with consequences for global economic activity.

Suggested Citation

  • Gai, Prasanna & Tong, Eric, 2022. "Information spillovers of US monetary policy," Journal of Macroeconomics, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:jmacro:v:72:y:2022:i:c:s0164070422000052
    DOI: 10.1016/j.jmacro.2022.103401
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    1. Georgiadis, Georgios & Jarociński, Marek, 2023. "Global spillovers from multi-dimensional US monetary policy," Working Paper Series 2881, European Central Bank.

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    More about this item

    Keywords

    Monetary policy spillovers; Information effect; Heteroskedasticity;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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