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The Transmission of International Monetary Policy Shocks to Firms’ Expectations

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Listed:
  • Frache, Serafin
  • Lluberas, Rodrigo
  • Pedemonte, Mathieu
  • Turén, Javier

Abstract

Motivated by the dominant role of the US dollar, we explore how monetary policy (MP) shocks in the United States 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. We show that a contractionary MP shock in the United States reduces firms' inflation and cost expectations in Uruguay. This result contrasts with the effect of this shock on the Uruguayan economy. We study mechanisms related to how firms and managers experience in different monetary policy regimes can explain the results and discuss their implications.

Suggested Citation

  • Frache, Serafin & Lluberas, Rodrigo & Pedemonte, Mathieu & Turén, Javier, 2025. "The Transmission of International Monetary Policy Shocks to Firms’ Expectations," IDB Publications (Working Papers) 14286, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:14286
    DOI: http://dx.doi.org/10.18235/0013709
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    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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