U.S. Monetary Policy and the Global Financial Cycle

Miranda-Agrippino, S and Rey, H (2020) U.S. Monetary Policy and the Global Financial Cycle. Review of Economic Studies, 87 (6). pp. 2754-2776. ISSN 0034-6527

Abstract

US monetary policy shocks induce comovements in the international financial variables that characterize the 'Global Financial Cycle'. A single global factor that explains an important share of the variation of risky asset prices around the world decreases significantly after a US monetary tightening. Monetary contractions in the US lead to significant deleveraging of global financial intermediaries, a decline in the provision of domestic credit globally, strong retrenchments of international credit flows, and tightening of foreign financial conditions. Countries with floating exchange rate regimes are subject to similar financial spillovers.