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When the FedSneezes, the Cold is Transmitted by Trade

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  • Santiago Camara

  • Lawrence J. Christiano

  • Husnu Dalgic

Abstract

We investigate the global transmission of US monetary policy shocks. The existing literature finds that a US monetary contraction causes a contraction in economic activity not only in the US but also abroad. This sharply contradicts the traditional Mundell-Fleming view. Much of the existing literature refers to frictions in international financial markets as reasons for the failure of the traditional view. Instead, we argue that trade is key for understanding the transmission of US monetary policy shocks.

Suggested Citation

  • Santiago Camara & Lawrence J. Christiano & Husnu Dalgic, 2026. "When the FedSneezes, the Cold is Transmitted by Trade," CRC TR 224 Discussion Paper Series crctr224_2025_782, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_782
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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