A common shift in real interest rates across countries

Understanding the behavior of real interest rates is a central issue in monetary/macro economics. Recently researchers have begun to use futures market data to examine real interest rate behavior. Futures market data can be used to directly construct own-commodity real interest rates ? i.e., the ex-ante real return on a bond in terms of specific commodities -- and then the own-commodity real rates can be used to make inferences about the real interest rate for the aggregate economy, This paper examines whether futures market data can be used to understand the behavior of real interest rates. The conclusion is a negative one: Futures market data do not appear to be particularly informative about real interest rates. In coming to this conclusion, the paper examines the data in several ways. First. the ex-ante relative price movement embedded in the own-commodity real rates (the noise) is calculated to be on the order of over one hundred times more variable than the aggregate real interest rate (the signal), Own-commodity real rates are thus unlikely to contain much information about the aggregate real interest rate. Second. several widely accepted facts about the behavior of aggregate real interest rates in the 1960s are not at all evident in the own-commodity real rate data. Thus, analysis of own- commodity real rates provides a misleading impression of aggregate real rate movements for a period which displays the most striking movements of real interest rates in the postwar period. Finally, an econometric analysis of own-commodity real rate behavior fails to find evidence of a shift in the behavior of real interest rates when the monetary policy regime changes in October 1579, a finding that is at odds with previous strong findings in the literature.

Monetary policy regime shifts and the unusual behavior of real interest rates

How to quantitatively measure the macro dynamic effect of monetary policy is one of the most critical issues in the mainstream macro research （Benanke and Gertler, 1995; Christiano, et al., 1999）. In the context of global financial integration, how will a country’s monetary policy affect the macroeconomy of other countries? This international spillover effect of monetary policy has been hotly debated in the academy, but it has not yet been conclusive. The reason is that, empirically, how to identify the impact of exogenous monetary policy has not been well resolved at the technical level; theoretically, mainstream macroeconomic models provide various transmission mechanisms, and no consensus has been reached.Due to the above difficulties, research on the international spillover effect of monetary policy is still in its early stage, and the impact of US monetary policy on China’s economy is seldom studied. From the empirical point of view, this article follows the latest literature Barakchian and Crowe （2013, hereinafter referred to as BC） to identify the impact of exogenous monetary policy in the United States, and studies the dynamic impact of US monetary policy on China’s macroeconomy and its underlying transmission mechanism. This article provides new evidence on the international spillover effect of monetary policy and also tests the existing theories in international economics from an empirical perspective.The primary issue to be addressed in monetary policy research is how to identify exogenous monetary policy shocks. However, macroeconomic regulation often relies on the current situation of aggregate economy. Since there is a strong endogenous relationship among economic variables, it is difficult to directly construct a system that includes policy variables and macroeconomic indicators to identify exogenous monetary policy shocks. To this end, BC （2013） solves the endogenous issue regarding the identification of monetary policy shocks. The exogenous shock constructed through their indicator not only avoids making ad hoc assumptions about the feedback rules of monetary policy, but also avoids the endogenous problems and the sample selection issue in traditional identification methods.Based on the US monetary policy shock constructed by BC （2013）, this article studies the spillover effect of US monetary policy on China’s macroeconomy and therefore solves the aforementioned endogenous problem of monetary policy shocks. The basic model of the empirical analysis is a three-variable structural vector autoregressive error correction model （SVECM） that includes China’s industrial output, price index, and US monetary policy shocks. Based on this model, we find that the opening-up policy of WTO accession at the end of 2001 has a significant structural impact on the spillover effect of US monetary policy and its transmission mechanism. Specifically, we divide the monthly data from 1996−2008 into two sub-samples before and after January 2002. Using the 2002−2008 subsample, we find that the impact of the US’s tightening monetary policy significantly causes China’s output to rise and prices to fall, thus performing as a positive supply shock to China’s economy. Based on the 1996−2001 subsample, US monetary policy will not have a significant impact on China’s economy. The above findings are largely different from the findings in Kim （1999, 2001）, Canova （2005）, and among others.In the analysis of the transmission mechanism, this article finds that the price channel can well explain the stylized facts in the data. Our theory proceeds as follows: The US tightening monetary policy will lead to the appreciation of the US dollar, which will cause US manufacturers to lower their export prices in US dollars （Exchange Rate Pass-Through）. Due to the yuan-dollar fixed exchange rate system, China’s import prices will decline, and the prices of domestic raw materials and CPI will decline. Lower production costs lead manufacturers to increase production, which is reflected by an increase in China’s output. Therefore, the price channel indicates that the US tightening monetary policy is equivalent to a positive supply shock, which will simultaneously increase China’s output and reduce the price level. Based on the extended SVECM system, we find that Chinese macro data can identify the price channels of imported goods. Further robustness analysis shows that our main findings are robust to different sample periods and different model settings. Besides, in order to better explain the identification of import price channels, we have conducted empirical tests on several standard theories in international economics. The results show that the standard theories fail to explain the Chinese data. Therefore, the price channel provides the primary transmission mechanism of the spillover effect of US monetary policy on China’s economy, and this channel also explains the empirical finding that WTO has a structural impact on the spillover effect.

The article examines modeling the impact of news shocks of US monetary policy on developing countries. The study analyzes the transmission mechanism of the Federal Reserve's interest rate news shock. The authors argue that the volatility of macroeconomic indicators in emerging economies can be explained by changes in monetary policy in other countries, and highlight the main channels of influence: financial sector indicators and trade indicators. In this paper the authors first use the LSDV-estimator of the panel vector autoregression and identify unexpected and news shocks. To achieve this goal, quarterly data was collected from the first quarter of 1998 to the third quarter of 2017 for Russia, along with data starting from the first quarter of 1995 for several developing countries. The results obtained indicate that the expected tightening of US monetary policy leads to a decrease in output, investment, and weakening of exchange rate in Russia. The monetary news regarding an increase in the US Federal Reserve's interest rate in two quarters also results in a short-term increase in trade balance and interest rates. News about future economic developments affects macroeconomic indicators up to two quarters before the implementation of monetary policy changes. Additionally, the news shock accounts for up to 11% of the variation in macroeconomic indicators in Russia. Accordingly, the monetary policy news shock is found to be as significant as an unexpected shock. The paper concludes with the analysis of the role played by various financial and trade channels.

The growing impact of US monetary policy on emerging financial markets: Evidence from India

What Goes Around Comes Around: How Large are Spillbacks from US Monetary Policy?

Due to the severity of the 2007-2009 financial crisis, the United States Federal Reserve aggressively lowered the policy rate to zero and adopted several “unconventional” monetary policies, including “Quantitative Easing (QE).” The literature has long suggested that US monetary policies had strong spillover effects on foreign countries. Accordingly, the governor of Taiwan's central bank, Dr. Fai-Nan Perng, expressed strong concerns about such ripple effects of US policy on the Taiwanese economy. This paper follows Ammer et al. (2016) to use the Federal Reserve's unconventional monetary policy announcements to support the claim that US monetary policy has significant impacts on the Taiwanese economy and financial markets. Also, the spillover effects of pre-crisis “traditional” monetary policies are compared with the spillover effects from implementing “unconventional” policies during and post-crisis. The results show that US monetary policies exert significant impacts on the Taiwanese economy. Finally, we discuss the response of Taiwan's central bank to these spillover effects.

Federal reserve's policy, global equity markets, and the local monetary policy stance

Since the use of swap lines during the global financial crisis, the Federal Reserve is widely seen as international lender of last resort. Yet the focus on emergency liquidity assistance tends to obscure the broader significance of swap lines for US monetary governance. As this article shows, swap lines have historically played a crucial and evolving role in structuring and facilitating specific practices of offshore Eurodollar liquidity production in the interest of US monetary policy. A key contemporary example can be found in the uptake of swap lines during the Covid-19 market turmoil in early 2020: swap lines alleviated offshore dollar funding conditions to such an extent that they also triggered reverse inflows of dollar liquidity back into the US. More than simply providing a backstop to the global system, these swap interventions effectively restructured cross-border financial flows in a way that afforded the Fed greater control over domestic markets. Yet as the capacity to influence global liquidity conditions appears increasingly crucial to the Federal Reserve’s control over domestic monetary conditions, these interventions pose broader questions about its role in managing instable and evolving cross-border credit relations that link domestic and global markets.

In 2022, the US Federal Reserve implemented multiple monetary policy to control inflation, significantly impacting the financial markets. This study focuses on examining the impact of the Federal Reserve's announcements of rising interest rates on the price of Bitcoin. By utilizing the ARMA model and analyzing historical price data, the research aims to uncover the price dynamics of Bitcoin in response to changes in the Federal Reserve's interest rate decisions. The findings indicate that ultra-short term of the Bitcoin prices is not influenced by interest rate hikes. However, there is a notable correlation, where higher interest rates are associated with lower Bitcoin prices in the short term. The study's findings provide crucial insights into how the cryptocurrency market responds to the actions taken by the Federal Reserve, thus offering valuable information for investors and analysts in this domain. Policymakers should exercise caution in observing cryptocurrency movements and consider the impact of monetary policy on digital assets as they continue to play an increasingly significant role in the overall economy.

International Spillovers of Monetary Policy: Evidence from France and Italy

How does uncertainty originating from the future path taken by monetary policy enacted by the Federal Reserve in the United States affect the business confidence in other advanced economies? Does US monetary policy uncertainty affect economic activity in the United States and in Canada, France, Germany, Italy, Japan, and the United Kingdom. Motivated to answer these questions, we use monthly data and a bivariate GARCH-in-Mean VAR model. We also use a multivariate structural VAR model and a different measure of US monetary policy uncertainty, achieving identification by a combination of short-run and long-run restrictions. Our evidence shows that US monetary policy uncertainty, irrespective of how it is measured, has negative effects on the business confidence and output in the advanced G7 economies.

This study analyses the response of the Korean housing market using the monthly US 2-year Treasury bond yield as the US monetary policy shock variable and the nationwide house price index as the outcome variable, covering the period from January 2006 to July 2025. Local projection (LP) analysis reveals that the magnitude and duration of the impact on the Korean housing market vary depending on the direction of US monetary policy. An asymmetry is observed, whereby Korean house prices decline more significantly and for a longer period during monetary tightening than during monetary easing. To simultaneously account for asymmetry and state dependence, asymmetric threshold local projection (T-LP) was applied. Results indicate that under the low-interest-rate regime, the downward response to US tightening shocks is concentrated and amplified in the medium term, whereas under the high-interest-rate regime, the effects of easing shocks are relatively more pronounced. Thus, the spillover effects of monetary policy are significantly differentiated across regimes. This suggests that linear LP may underestimate the effect by averaging the opposing regime-specific responses or misinterpret it as non-linearity. Furthermore, to examine the transmission channels through which US monetary policy shocks propagate, an LP-based causal mediation analysis (LPCMA) was conducted. This confirmed that household debt, representing the credit channel, is a primary pathway sustaining declines in house prices. Mortgage rates act as a channel amplifying declines in the medium term and beyond. The indirect effects of the exchange rate, housing policy, VIX, consumer sentiment, and expected inflation were found to have limited indirect effects. The proportion of indirect effects via mediating variables within the total shock was not significant, indicating that a substantial portion of the US interest rate shock is transmitted through direct effects. These results suggest that the spillover effects of US monetary policy on the Korean housing market may be influenced not only by measurable financial and psychological variables, but also by unobserved changes in expectations, interactions between channels, and factors inherent to the Korean housing market's structural and institutional characteristics. The findings of this study demonstrate the necessity for policy authorities to consider both domestic policy conditions and the global financial environment when formulating regime-specific response strategies to external monetary policy shocks.

Policymakers in emerging markets complained that the unconventional US monetary policy response to the Great Recession hurt their economies. US policymakers responded that the policy was geared toward conditions in the US, and that a strong US economy benefited everyone. Here we evaluate these claims in a two country model of the US and an emerging market country, bombarded by shocks to the net worth of US banks. Our model allows us to calculate a “passive equilibrium” in which US monetary policy does not respond to the shock in any way. Then, we calculate a “self oriented” equilibrium in which quantitative easing is set optimally to maximize US welfare, and a “cooperative” equilibrium in which quantitative easing and the monetary policy in the emerging market country are set to maximize joint welfare. Comparing welfare in these equilibria, we find that the self oriented US monetary policy benefits both countries, and that cooperation brings little further improvements in welfare.

Understanding the impacts of US monetary policy on the Vietnamese stock market is important for many stakeholders since Vietnam has been gradually integrated into the global economy. There has been an increased relationship in trade, investment and other activities between Vietnam and the USA in the last few decades. Employing dynamic panel data techniques, we find that US monetary policy has strong impacts on the Vietnamese stock market. Moreover, we document that these impacts are affected by the Vietnamese firm's characteristics including firm size, market-to-book ratio and financial leverage. The estimation results also confirm the impacts of firm size and market-to-book equity on stock returns as suggested by the Fama-French model. Vietnamese stock returns are also driven by the country's macroeconomic condition, monetary policy, inflation, and stock market performance.