Monetary policy spillovers from the USA to advanced and emerging economies

This paper investigates the effects of monetary policy rate uncertainty in the USA on the policy rates of seven advanced economies—Australia, Canada, Denmark, Euro Area, New Zealand, Sweden, and Switzerland—and seven emerging economies —Brazil, China, India, Indonesia, Russia, Mexico, and Turkey. We employ a bivariate structural GARCH-in-Mean VAR model to examine how US policy rate uncertainty influences the policy rate of each of the advanced and emerging economies. Additionally, we analyze the dynamics of policy rates in response to positive and negative shocks to the US policy rate using impulse response functions. The study utilizes monthly data from the Bank for International Settlements, beginning in January 1991, in line with the inception of the inflation-targeting regime and the availability of data for each country. Our findings reveal that US policy rate uncertainty has a significant and positive spillover effect on the policy rates of four advanced economies, while among emerging economies, one experiences a negative effect and another a positive effect. However, impulse response functions indicate that shocks to the US policy rate impact the policy rates of all advanced and emerging economies, except Turkey, with varying magnitudes.