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The Spill-back and Spillover Effects of US Monetary Policy: Evidence on an International Cost Channel

Author

Listed:
  • Yao Amber Li
  • Lingfei Lu
  • Shang-Jin Wei
  • Jingbo Yao

Abstract

We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical “spill-back” pattern differs from the predictions of typical open-economy macro models. We also document a new empirical "spillover" effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel—their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions.

Suggested Citation

  • Yao Amber Li & Lingfei Lu & Shang-Jin Wei & Jingbo Yao, 2025. "The Spill-back and Spillover Effects of US Monetary Policy: Evidence on an International Cost Channel," NBER Working Papers 33811, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33811
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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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