Working Paper: NBER ID: w21722
Authors: Silvia Miranda-Agrippino; Hélène Rey
Abstract: US monetary policy shocks induce comovements in the international financial variables that characterize the “Global Financial Cycle.” One global factor explaining an important share of the variation of risky asset prices around the world decreases significantly after a US monetary contraction. Monetary tightening in the US leads 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.
Keywords: US Monetary Policy; Global Financial Cycle; Risky Asset Prices; International Credit Growth
JEL Codes: E44; E58; F33; F42; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US monetary policy shocks (E39) | comovements in international financial variables (F30) |
| contractionary US monetary policy shock (E39) | decrease in risky asset prices globally (G19) |
| decrease in risky asset prices globally (G19) | deleveraging of global banks (F65) |
| deleveraging of global banks (F65) | retrenchment of international credit flows (F32) |
| US monetary policy tightening (E52) | higher corporate spreads (G39) |
| US monetary policy tightening (E52) | contraction in lending (G21) |