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---

### Background and context
- Global financial conditions were very favorable over most of the past decade, driven by an unprecedented accommodative monetary policy stance in the U.S. and other advanced economies, with further accommodation in 2020 to mitigate COVID-19 impacts.
- Rapidly rising inflation in the U.S. during 2022 prompted the Federal Reserve to tighten policy, raising interest rates by 425 basis points in seven consecutive moves in 2022, contributing to sharply tighter global financial conditions especially in emerging markets.
- Middle East and Central Asia (ME & CA) countries raised interest rates in response to U.S. tightening. Sovereign bond issuances on international capital markets plunged by more than 80 percent in oil importers and 50 percent in oil exporters in 2022 compared to 2021.

### Key research questions
- What are the spillovers of a U.S. monetary tightening to the ME & CA region?
- Do the spillovers depend on which type of shock drives the tightening?
- Do countries’ fundamentals and other factors play a role in determining the size and potentially the sign of the spillovers?
- What is the estimated impact of the 2022 U.S. monetary tightening on the ME & CA region? Is there heterogeneity across ME & CA countries?

### Shock decomposition and identification
- U.S. monetary policy announcements embed two underlying shocks:
  - Pure monetary policy shock (푒푡): unexpected monetary stance shifts orthogonal to the economic outlook; contains no “Fed information effect.”
  - Information news shock (푖푡): embeds the Fed information effect, driven by changes to the economic outlook and the Fed’s assessment/forecast.
- Estimation approach (overview):
  - Re-estimate daily changes in U.S. benchmark interest rates into monetary policy shocks and information news shocks following Bu et al. (2021) and Ciminelli et al. (2022).
  - Use a heteroskedasticity-based, partial least squares (PLS) approach exploiting sensitivities of U.S. zero-coupon yields (1 to 30 years) to FOMC announcements.
  - Normalize unobserved monetary policy shocks to have a one-to-one relationship with the 2-year Treasury yield.
  - Recover monetary policy shocks from cross-sectional regressions of daily yield changes on estimated sensitivities; obtain information news shocks as residuals orthogonal to monetary policy shocks.
  - Estimated series êt and ît at monthly frequency based on FOMC announcements since January 1994; values equal zero in months without FOMC announcements.
- By construction:
  - Contractionary (expansionary) monetary policy shocks take positive (negative) values.
  - Positive (negative) information news shocks take positive (negative) values.

### Sample and empirical strategy (section 3.2 econometric framework)
- Sample: 16 ME & CA emerging markets:
  - Eight oil exporters: Algeria, Bahrain, Kazakhstan, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates.
  - Eight oil importers: Armenia, Egypt, Georgia, Jordan, Lebanon, Morocco, Pakistan, Tunisia.
- Dependent variables (푦푖,푡): log-real GDP and expenditure components, sovereign spreads, log of stock indexes, exchange rates against US dollar, portfolio flows as percentage of beginning allocation in the period.
- Estimation method: local projections (Jordá (2005)).
- Lags and horizons:
  - Lagged dependent variables: two lags (푙=2).
  - Real GDP (annual data): 푇=3 (impacts through three years).
  - Other macro-financial dependent variables (monthly): 푇=6 (impacts through six months).
- Control variables: current and lagged global or country-specific variables including percentage change in oil prices, inflation, exchange rate regime (dummy for hard peg), and capital account openness.
- Nonlinear interaction specification:
  - Smooth transition function 퐹(푧푖,푡)=푒−휂푧푖,푡/(1+푒−휂푧푖,푡), 휂 calibrated at 10.
  - Conditioning variables normalized to zero mean and unit variance; superscripts H and L denote high and low groups.
  - Conditioning variables used: reserves (as percentage of broad money), economy-wide external debt (as percentage of GDP), fiscal balance (as percentage of GDP), public debt (as percentage of GDP), oil prices (US$ per barrel), VIX index.
- Statistical details:
  - Responses normalized to a standard deviation of the shocks.
  - A standard deviation of monetary policy shocks is about 17.5 basis points.
  - A standard deviation of information news shocks is about 12.2 basis points.
  - Equations estimated with HAC robust standard errors, clustered by country and time fixed effects.

### Baseline aggregate-sample findings (growth)
- Contractionary monetary policy shocks:
  - Persistently negative impact on growth of ME & CA countries, not statistically significant until three years later.
- Positive information news shocks:
  - Persistently positive impact on growth, statistically significant after one year.
- Interaction:
  - The two shocks can mitigate each other if they share the same sign, or amplify each other if they have different signs.

Key cumulative effects of a standard deviation of shocks on real GDP growth (percentage points)
- Contraction Monetary Policy Shocks:
  - Year 푡: -0.02
  - Year 푡+1: -0.33
  - Year 푡+2: -0.74
  - Year 푡+3: -1.09**
- Positive Information News Shocks:
  - Year 푡: 0.25
  - Year 푡+1: 0.90***
  - Year 푡+2: 0.85***
  - Year 푡+3: 1.06***

(Notes: *,**,*** correspond to 10%, 5% and 1% significance.)

Additional financial-variable impacts (summary)
- Contractionary monetary policy shocks: higher sovereign spreads, lower stock prices, some currency depreciation pressures, and capital outflows.
- Positive information news shocks: lower sovereign spreads, higher stock price indexes, currency appreciation, and capital inflows.

### Role of country-specific fundamentals
- Weak fundamentals (lower reserves, higher external debt, weaker fiscal balance, higher public debt) amplify negative spillovers from contractionary monetary policy shocks.
- Strong fundamentals exhibit short-term resilience; strong-fundamentals countries generally do not experience a growth decline in the same year of initial shocks.
- For information news shocks:
  - Countries with higher foreign exchange reserves and lower public debt see larger positive spillovers.
  - Lower external debt and stronger fiscal balances do not always yield better growth outcomes; weaker-fundamentals countries may sometimes benefit more from positive information news shocks (consistent with a “risk-taking channel” where reduced uncertainty boosts sentiment and capital inflows).

### Role of global environment (oil prices and risk appetite)
- Oil prices:
  - Oil exporters see much larger negative impacts of contractionary monetary policy shocks when oil prices are lower.
  - When oil prices are higher, negative impacts on oil exporters are much smaller and insignificant.
  - For information news shocks, oil exporters are estimated to see larger positive spillovers when oil prices are lower (possible interpretations discussed in text).
- Global risk appetite (VIX):
  - Low global risk appetite amplifies adverse impacts from contractionary monetary policy shocks; high risk appetite dampens them.
  - Positive spillover effects of information news shocks are smaller when risk appetite is low and larger when risk appetite is high.

### The 2022 tightening: shock sums and estimated impacts
- Sum of estimated shocks in 2022 (March to December; seven FOMC announcements):
  - Sum of monetary policy shocks: -0.07 percentage points.
  - Sum of information news shocks: -0.10 percentage points.
- Interpretation:
  - Negative sum of monetary policy shocks → monetary policy in 2022 has been less tight than expected by the market.
  - Information news shocks more negative in absolute value → market perceived a pessimistic U.S. outlook, dominating spillovers.
- Combined spillover estimate (plugged into estimated Equation (1)):
  - The 2022 tightening cycle so far would lower growth in ME & CA countries by 0.2 percentage points in 2022, and 0.6 percentage points in 2023, on average.

Heterogeneity in estimated 2023 impacts by oil-exporter/importer status and fundamentals
- Estimated impact on 2023 growth (percentage points):
  - Oil exporters with weak fundamentals: -1.7
  - Oil exporters with strong fundamentals: -0.1
  - Oil importers with weak fundamentals: -2.0
  - Oil importers with strong fundamentals: -0.3
- Summary:
  - Countries with weak fundamentals suffer more severe adverse impacts.
  - Oil exporters fare better than oil importers due to favorable oil prices.
  - Oil importers with weak fundamentals suffer the most (estimated -2.0 percentage points in 2023); strong fundamentals mitigate adverse impacts (to -0.3 percentage points).
  - Oil exporters with strong fundamentals would barely suffer (estimated -0.1 percentage points in 2023).

### Conclusion and policy implications
- The U.S. implemented the most aggressive monetary policy tightening cycle since 1994, increasing interest rates by 425 bps in seven consecutive times since March 2022 through the end of the year, among which there are four jumbo hikes of 75 basis points.
- Shock type matters:
  - Contractionary monetary policy shocks hinder growth via lower consumption and exports.
  - Positive information news shocks boost growth via higher consumption, exports, and investment.
- Country fundamentals and global factors:
  - Weaker fundamentals amplify negative spillovers; they may also, in some cases, lead to larger benefits from positive information news shocks.
  - Oil prices mitigate adverse impacts for oil exporters; global risk appetite amplifies transmission.
- Policy implications:
  - Building and maintaining policy buffers and resilience is critical to mitigate larger spillovers for countries with weak fundamentals.
  - A faster or more aggressive than anticipated tightening in the U.S. could lead to sharply tighter global financial conditions and significantly larger impacts on the ME & CA region via spikes in risk premia, declines in risk appetite, disruptive capital outflows, asset market selloffs, and currency depreciation pressures.

*IMF Working Paper — “U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations” — sections 1, 3.2, and 7 as provided.*

### 1. Introduction ........................................................................................................

### 1. Introduction

### Background and context
- Global financial conditions were very favorable over most of the past decade, driven by an unprecedented accommodative monetary policy stance in the U.S. and other advanced economies, with further accommodation in 2020 to mitigate COVID-19 impacts.
- Rapidly rising inflation in the U.S. during 2022 prompted the Federal Reserve to tighten policy, raising interest rates by 425 basis points in seven consecutive moves in 2022, contributing to sharply tighter global financial conditions especially in emerging markets.
- Middle East and Central Asia (ME & CA) countries raised interest rates in response to U.S. tightening. Sovereign bond issuances on international capital markets plunged by more than 80 percent in oil importers and 50 percent in oil exporters in 2022 compared to 2021.

### Key research questions
- What are the spillovers of a U.S. monetary tightening to the ME & CA region?
- Do the spillovers depend on which type of shock drives the tightening?
- Do countries’ fundamentals and other factors play a role in determining the size and potentially the sign of the spillovers?
- What is the estimated impact of the 2022 U.S. monetary tightening on the ME & CA region? Is there heterogeneity across ME & CA countries?

### Shocks decomposition and identification
- U.S. monetary policy announcements embed two underlying shocks:
  - Pure monetary policy shock: unexpected monetary stance shifts orthogonal to the economic outlook; contains no “Fed information effect.”
  - Information news shock: embeds the Fed information effect, driven by changes to the economic outlook and the Fed’s assessment/forecast.
- The decomposition is central because contractionary monetary policy shocks tend to generate adverse spillovers, whereas positive information news shocks can generate positive spillovers by reducing uncertainty and boosting sentiment.
- Identification approach (overview):
  - Follow Bu et al. (2021) and Ciminelli et al. (2022) to re-estimate daily changes in U.S. benchmark interest rates into pure monetary policy shocks and information news shocks.
  - Use a heteroskedasticity-based, partial least squares (PLS) approach exploiting sensitivities of U.S. zero-coupon yields (1 to 30 years) to FOMC announcements.
  - Normalize the unobserved monetary policy shocks to have a one-to-one relationship with the 2-year Treasury yield.
  - Recover monetary policy shocks from cross-sectional regressions of daily yield changes on estimated sensitivities; obtain information news shocks as residuals orthogonal to monetary policy shocks.
  - Estimated series of monetary policy shocks êt and information news shocks ît are at monthly frequency based on FOMC announcements since January 1994, with values equal to zero in months without FOMC announcements.
- By construction:
  - Contractionary (expansionary) monetary policy shocks take positive (negative) values.
  - Positive (negative) information news shocks take positive (negative) values.
- Example interpretation: monetary policy shocks during Operation Twist are contractionary and take the largest positive value in the sample; information news shocks are negative and take the largest negative value at the end of 2007 reflecting the Fed’s pessimistic view during the Global Financial Crisis.

### Sample and empirical strategy
- Sample: 16 ME & CA countries, consisting of both oil exporters and oil importers.
- Empirical tools include the shock decomposition and a local projection model to estimate spillovers to the region and the 2022 tightening cycle.

### Main findings — aggregate and heterogeneity
- Aggregate effects:
  - Contractionary monetary policy shocks generally have a negative impact on growth by reducing consumption and exports, though not statistically significant until three years later.
  - Positive information news shocks have a positive and statistically significant (after one year) impact on growth in the aggregate sample by increasing consumption, exports, and investment, despite leading to tighter financial conditions.
- Role of country-specific fundamentals:
  - Countries with weaker fundamentals—lower foreign exchange reserves, higher external debt, weaker fiscal balances, and higher public debt—generally see larger and more immediate growth declines in response to contractionary monetary policy shocks compared to countries with stronger fundamentals.
  - Countries with strong fundamentals and ample buffers exhibit short-term resilience and generally do not experience a growth decline in the same year of the initial shocks.
  - For positive information news shocks, countries with higher foreign exchange reserves and lower public debt see larger positive spillovers. However, lower external debt and stronger fiscal balances do not always lead to better growth outcomes; countries with weaker fundamentals may sometimes benefit more from positive information news shocks (consistent with a “risk-taking channel” where reduced uncertainty boosts sentiment and capital inflows).
- Interaction and amplification:
  - The two shocks can mitigate or amplify each other depending on sign and underlying drivers (e.g., both positive or opposing signs).
  - Global environment matters: global risk appetite (proxied by the VIX index; higher VIX reflects higher stock market volatility and lower risk appetite) can amplify effects:
    - Lower global risk appetite is associated with larger negative spillovers from contractionary monetary policy shocks.
    - Higher risk appetite is associated with larger positive spillovers from positive information news shocks.
- Role of oil prices for oil exporters:
  - Higher oil prices improve oil exporters’ fundamentals and cushion negative impacts of contractionary monetary policy shocks.
  - For information news shocks, the effect is ambiguous: the growth boost from information news shocks for oil exporters is on average higher when oil prices are lower, consistent with weaker fundamentals benefitting more under positive information news shocks in some cases.

### Estimated impact of the 2022 tightening
- Decomposition of the 2022 tightening:
  - The pure monetary policy component of the 2022 shock is slightly negative, implying tightening just below expectations.
  - Information news shocks are estimated to also be negative and dominate the overall decomposition, indicating a pessimistic view on the U.S. outlook.
- Estimated average growth spillovers to the ME & CA region:
  - -0.2 percent in 2022.
  - -0.6 percent in 2023.
- Heterogeneity by country group and fundamentals:
  - ME & CA oil importers with weak fundamentals: largest negative growth impact of -2.0 percent for 2023.
  - ME & CA oil importers with strong fundamentals: smaller growth deterioration of 0.3 percent for 2023.
  - Oil exporters with weak fundamentals: growth deterioration of 1.7 percent for 2023.
  - Oil exporters with strong fundamentals: growth deterioration of 0.1 percent for 2023.

### Structure of the paper (overview)
- Section 2: literature review and paper contributions.
- Section 3: sample, data, and empirical framework including estimation of shocks and spillovers.
- Section 4: baseline results for aggregate ME & CA sample.
- Section 5: role of country-specific and global factors in spillover heterogeneity.
- Section 6: local projection estimates of the 2022 U.S. tightening impact on ME & CA countries.
- Section 7: conclusion.

*IMF Working Paper — “U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations” — Introduction section.*

### 3.2 Econometric framework

### 3.2 Econometric framework

### Sample, variables, and identification
- Sample: 16 ME & CA emerging markets: eight oil exporters (Algeria, Bahrain, Kazakhstan, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates) and eight oil importers (Armenia, Egypt, Georgia, Jordan, Lebanon, Morocco, Pakistan, Tunisia).
- Dependent variables (푦푖,푡): log-real GDP and its expenditure components, sovereign spreads, log of stock indexes, exchange rates against US dollar, portfolio flows as percentage of beginning allocation in the period.
- Shocks:
  - 푒푡: U.S. monetary policy shocks.
  - 푖푡: U.S. information news shocks.
- Estimation method: local projections (Jordá (2005)).
- Lags and horizons:
  - Lagged dependent variables: two lags included (푙=2).
  - Real GDP (annual data): 푇=3 (impacts through three years after the shocks).
  - All other macro-financial dependent variables (monthly data): 푇=6 (impacts through six months after the shocks).
- Control variables (푋푖,푡−푙): current and lagged global or country-specific variables including percentage change in oil prices, inflation, exchange rate regime (dummy for hard peg), and capital account openness.
- Country fixed effects: 훼푖 included.

### Nonlinear interaction specification
- Interaction specification follows Auerbach and Gorodnichenko (2013) and Ramey and Zubairy (2018) using smooth transition function:
  - 퐹(푧푖,푡)=푒−휂푧푖,푡/(1+푒−휂푧푖,푡), 휂>0.
  - Conditioning variable 푧 normalized to zero mean and unit variance.
  - Superscripts 퐻 and 퐿 denote high and low groups.
  - Interpretation: 퐹(푧푖,푡) is the probability of being in a low-value group; 1−퐹(푧푖,푡) is probability of being in a high-value group.
- Calibration: 휂 is calibrated at 10 to smooth impulse response function.
- Conditioning variables used (selected from literature): reserves (as percentage of broad money), economy-wide external debt (as percentage of GDP), fiscal balance (as percentage of GDP), public debt (as percentage of GDP), oil prices (US$ per barrel), VIX index.

### Statistical details and normalization
- Responses are normalized to show responses to a standard deviation of the shocks.
- A standard deviation of monetary policy shocks is about 17.5 basis points.
- A standard deviation of information news shocks is about 12.2 basis points.
- Equations estimated with HAC robust standard errors, clustered by country and time fixed effects.

---

### Baseline aggregate-sample findings (growth)
- Contractionary monetary policy shocks:
  - Persistently negative impact on growth of ME & CA countries, not statistically significant until three years later.
- Positive information news shocks:
  - Persistently positive impact on growth, statistically significant after one year.
- Interaction between shocks:
  - The two shocks can mitigate each other if they share the same sign, or amplify each other if they have different signs.

Key cumulative effects of a standard deviation of shocks on real GDP growth (percentage points) — Table 1
- Contraction Monetary Policy Shocks:
  - Year 푡: -0.02
  - Year 푡+1: -0.33
  - Year 푡+2: -0.74
  - Year 푡+3: -1.09**
- Positive Information News Shocks:
  - Year 푡: 0.25
  - Year 푡+1: 0.90***
  - Year 푡+2: 0.85***
  - Year 푡+3: 1.06***

(Notes: *,**,*** correspond to 10%, 5% and 1% significance.)

Additional financial-variable impacts (summary)
- Contractionary monetary policy shocks: higher sovereign spreads, lower stock prices, some currency depreciation pressures, and capital outflows.
- Positive information news shocks: lower sovereign spreads, higher stock price indexes, currency appreciation, and capital inflows.

---

### Role of country-specific fundamentals
- Overall pattern:
  - Weak fundamentals (lower reserves, higher external debt, weaker fiscal balance, higher public debt) amplify negative spillovers from contractionary monetary policy shocks.
  - Strong fundamentals exhibit resilience in shock size and slower/less immediate impact (short-term resilience).
- Monetary policy shocks:
  - Countries with weak fundamentals experience larger negative impacts; strong-fundamentals countries generally do not experience a growth decline in the same year of the initial shocks.
- Information news shocks:
  - Countries with higher foreign exchange reserves and lower public debt see comparatively larger positive spillovers.
  - Lower external debt and stronger fiscal balances do not uniformly lead to better growth outcomes; in some cases, countries with weaker fundamentals benefit more from positive information news shocks, consistent with a “risk-taking channel” where reduced uncertainty and boosted sentiment lead to capital inflows despite weaker fundamentals.

---

### Role of global environment (oil prices and risk appetite)
- Monetary policy shocks (oil exporters and oil prices):
  - Oil exporters see much larger negative impacts of contractionary monetary policy shocks when oil prices are lower.
  - When oil prices are higher, negative impacts on oil exporters are much smaller and insignificant.
  - Interpretation: higher oil prices improve oil exporters’ fundamentals and cushion negative impacts.
- Monetary policy shocks (global risk appetite measured by VIX):
  - Low global risk appetite amplifies adverse impacts; high risk appetite dampens them.
  - Growth impact is statistically insignificant when risk appetite is high, and larger and significant when risk appetite is low — evidence of a “sentiment channel” in shock propagation.
- Information news shocks:
  - Oil exporters are estimated to see larger positive spillovers when oil prices are lower. Possible interpretations include:
    - A brighter U.S. outlook may drive oil prices higher in the future and boost nonoil exports via higher external U.S. demand.
    - Oil exporters’ growth may be less sensitive to oil prices when the U.S. outlook is brighter.
    - Consistent with earlier result that weaker-fundamental countries may benefit more from positive information news shocks under certain circumstances.
  - Risk appetite: positive spillover effects of information news shocks are smaller when risk appetite is low and larger when risk appetite is high, indicating U.S. market sentiment amplifies transmission.

---

### The 2022 tightening: shock sums and estimated impacts
- Sum of estimated shocks in 2022 (March to December; seven FOMC announcements):
  - Sum of monetary policy shocks: -0.07 percentage points.
  - Sum of information news shocks: -0.10 percentage points.
- Interpretation of 2022 sums:
  - Sum of monetary policy shocks negative → monetary policy so far in 2022 has been less tight than expected by the market (i.e., forward guidance meant tightening largely did not surprise markets to the upside).
  - Sum of information news shocks more negative in absolute value → market perceived a pessimistic U.S. outlook, which would dominate spillovers.
- Combined spillover estimate (plugged into estimated Equation (1)):
  - The 2022 tightening cycle so far would lower growth in ME & CA countries by 0.2 percentage points in 2022, and 0.6 percentage points in 2023, on average.

Heterogeneity in estimated 2023 impacts by oil-exporter/importer status and fundamentals (Table 2)
- Four groups defined by percentiles of fundamentals (reserves, external debt, fiscal balance, public debt).
- Estimated impact on 2023 growth (percentage points):
  - Oil exporters with weak fundamentals: -1.7
  - Oil exporters with strong fundamentals: -0.1
  - Oil importers with weak fundamentals: -2.0
  - Oil importers with strong fundamentals: -0.3
- Summary:
  - Countries with weak fundamentals suffer more severe adverse impacts.
  - Oil exporters fare better than oil importers due to favorable oil prices.
  - Oil importers with weak fundamentals suffer the most (estimated -2.0 percentage points in 2023); strong fundamentals mitigate adverse impacts (reducing negative spillover effects to -0.3 percentage points in 2023).
  - Oil exporters with strong fundamentals would barely suffer (estimated -0.1 percentage points in 2023).

*Source: IMF Working Paper section 3.2 Econometric framework and subsequent results as provided.*

### 7. Conclusion

### 7. Conclusion

### 2022 U.S. tightening episode and global spillover context
- The U.S. implemented the most aggressive monetary policy tightening cycle since 1994, increasing interest rates by 425 bps in seven consecutive times since March 2022 through the end of the year, among which there are four jumbo hikes of 75 basis points.
- Given the crucial role of U.S. monetary policy in driving global financial cycles and determining global financial conditions, the 2022 tightening cycle is expected to generate significant spillovers to the rest of the world, particularly emerging markets.

### Importance of shock type for quantifying spillovers
- Past spillovers to ME & CA countries differ by shock type:
  - Contractionary monetary policy shocks:
    - Hinder growth through reducing consumption and exports.
  - Positive information news shocks:
    - Boost growth through increasing consumption, exports, and investment.

### Role of country-specific fundamentals and global factors
- Country fundamentals amplify or mitigate spillovers:
  - Weaker fundamentals (lower foreign exchange reserves, higher external debt, weaker fiscal balance, and higher public debt) lead to larger growth declines in response to contractionary monetary policy shocks.
  - The same weaker fundamentals may, in some cases, lead to larger benefits when facing positive information news shocks.
- Global factors:
  - Oil prices act as a mitigator for oil exporters in response to both shocks.
  - Global risk appetite (VIX) acts as an amplifier for both spillovers.

### Estimated impacts on ME & CA from the 2022 tightening
- Average growth spillovers to the ME & CA region are small because the tightening cycle was within expectations.
- Heterogeneity across countries is large:
  - Oil exporters with strong fundamentals:
    - Withstand adverse shocks relatively well, helped by elevated oil prices.
  - Oil importers with weak fundamentals:
    - Suffer the largest adverse impacts.
- Empirical results underscore the importance of building buffers and resilience to avoid larger impacts from financial tightening associated with weak fundamentals.

### Policy implications and adverse scenario risks
- Building and maintaining policy buffers and resilience is critical to mitigate larger spillovers for countries with weak fundamentals.
- A faster or more aggressive than anticipated tightening in the U.S. could:
  - Lead to sharply tighter global financial conditions.
  - Have a significantly larger impact on the ME & CA region.
  - Trigger more severe spillovers via spikes in risk premia, declines in risk appetite, disruptive capital outflows, asset market selloffs, and currency depreciation pressures.

*Source: IMF Working Paper "U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations", Working Paper No. WP/2024/014 — Section 7. Conclusion.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024014-print-pdf.pdf_