U.S. monetary policy normalization and global interest rates

Caceres, Carlos, Carriere-Swallow, Yan, Demir, Ishak and Gruss, Bertrand (2016) U.S. monetary policy normalization and global interest rates. Working Paper. IMF.

Full content URL: http://www.imf.org/en/Publications/WP/Issues/2016/...

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Item Type:Paper or Report (Working Paper)
Item Status:Live Archive


As the Federal Reserve continues to normalize its monetary policy, this paper studies the impact of U.S. interest rates on rates in other countries. We find a modest but nontrivial pass-through from U.S. to domestic short-term interest rates on average. We show that, to a large extent, this comovement reflects synchronized business cycles. However, there is important heterogeneity across countries, and we find evidence of limited monetary autonomy in some cases. The co-movement of longer term interest rates is larger and more pervasive. We distinguish between U.S. interest rate movements that surprise markets versus those that are anticipated, and find that most countries receive greater spillovers from the former. We also distinguish between movements in the U.S. term premium and the expected path of risk-free rates, concluding that countries respond differently to these shocks. Finally, we explore the determinants of monetary autonomy and find strong evidence for the role of exchange rate flexibility, capital account openness, but also for other factors, such as dollarization of financial system liabilities, and the credibility of fiscal and monetary policy.

Additional Information:Working Paper No. 16/195
Keywords:Monetary policy, United States, Interest rates, Asset prices, Spillovers, Central bank autonomy, central banking, global shocks
Subjects:L Social studies > L160 International Economics
L Social studies > L100 Economics
L Social studies > L111 Financial Economics
L Social studies > L110 Applied Economics
L Social studies > L113 Economic Policy
L Social studies > L130 Macroeconomics
Divisions:College of Social Science
Lincoln International Business School
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ID Code:28086
Deposited On:02 Aug 2017 15:24

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