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The Transmission of International Monetary Policy Shocks on Firms' Expectations


  • Serafin Frache
  • Rodrigo Lluberas
  • Mathieu Pedemonte
  • Javier Turen


Motivated by the dominant role of the US dollar, we explore how monetary policy (MP) shocks in the US can affect a small open economy through the expectation channel. We combine data from a panel survey of firms' expectations in Uruguay with granular information about firms' debt position and total imports on a monthly basis. We show that a contractionary MP shock in the US reduces firms' inflation and cost expectations in Uruguay. This result contrasts with the inflationary effect of this shock on the Uruguayan economy, suggesting uncertainty about the policy regime. We discuss the issues and challenges of this expectation channel.

Suggested Citation

  • Serafin Frache & Rodrigo Lluberas & Mathieu Pedemonte & Javier Turen, 2023. "The Transmission of International Monetary Policy Shocks on Firms' Expectations," Working Papers 23-01, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:95429
    DOI: 10.26509/frbc-wp-202301

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    References listed on IDEAS

    1. Olivier Coibion & Yuriy Gorodnichenko & Saten Kumar, 2018. "How Do Firms Form Their Expectations? New Survey Evidence," American Economic Review, American Economic Association, vol. 108(9), pages 2671-2713, September.
    2. Bu, Chunya & Rogers, John & Wu, Wenbin, 2021. "A unified measure of Fed monetary policy shocks," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 331-349.
    3. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, Oxford University Press, vol. 134(2), pages 599-646.
    4. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    5. Nittai K. Bergman & David Matsa & Michael Weber & Michael Weber, 2022. "Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth," CESifo Working Paper Series 9512, CESifo.
    6. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
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    More about this item


    Firms' Expectations; Global Financial Cycle; Monetary Policy Spillovers;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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