The Global Reach of US Monetary Policy: Suggestive Evidence from the Global Financial Crisis and the COVID-19 Pandemic

This paper assesses the global reach of US monetary policy over the 2007-2022 period in a sample of 78 countries and currency unions. Our findings show that the zero-lower-bound (ZLB) problem was restricted to advanced economies or those with currencies tied to the US dollar during the Global Financial Crisis (GFC) but became more widespread following the outbreak of COVID-19. The enormous and rapid expansion of the Fed’s balance sheet was not common elsewhere in the GFC period. Only three central banks expanded the size of their real balance sheet by more in relative terms than the Fed during the GFC and its aftermath. In contrast, six central banks did so after hitting the ZLB bound during the COVID-19 pandemic. The strongest support for a leading global role of Fed policy action comes from a pairwise assessment of central bank balance sheet changes during the two crises. Positive comovements, both contemporaneous and lagged, between US balance sheet changes and changes in other countries were common, with correlations being considerably more widespread and higher during the pandemic than the GFC.