U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data
IMF Working Papers, September 16, 2022
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- U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data
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Bibliographic details
- Authors: Elif C Arbatli Saxegaard, Melih Firat, Davide Furceri, Jeanne Verrier
- Published: September 16, 2022
- Series: IMF Working Papers
Key research question and scope
- Objective: Examine three main channels through which U.S. monetary policy shocks affect firm investment in foreign countries.
- Channels studied:
- The balance sheet channel.
- The financial channel of the exchange rate.
- The trade channel.
- Data: Quarterly firm-level data for 63 advanced economies (AEs) and emerging market and developing economies (EMDEs) over 1996-2016.
- Authors: Elif C Arbatli Saxegaard, Melih Firat, Davide Furceri, Jeanne Verrier.
- Date: September 16, 2022.
- Publication series: Working Paper No. 2022/191; Pages: 69; ISBN: 9798400219948; ISSN: 1018-5941.
Main findings
- All three channels—balance sheet, financial channel of the exchange rate, and trade—play an important and independent role in transmitting U.S. monetary policy shocks to firm investment abroad.
- Balance sheet channel:
- U.S. monetary policy shocks have larger effects on investment for firms that are more leveraged.
- Back-of-the-envelope calculations suggest the balance sheet channel is the most important channel of transmission of U.S. monetary policy shocks on aggregate firm investment.
- Financial channel of the exchange rate:
- Firms with a higher share of debt in foreign currency experience larger investment effects from U.S. monetary policy shocks.
- Trade channel:
- Firms operating in sectors with higher export dependence experience larger investment effects from U.S. monetary policy shocks.
- Heterogeneity: Firm-level characteristics (leverage, share of foreign-currency debt, sectoral export dependence) significantly condition the size of spillovers.
Methodology and coverage
- Empirical approach: Analysis based on quarterly firm-level data across 63 AEs and EMDEs for the period 1996-2016.
- Scope emphasizes firm heterogeneity and cross-border spillovers from U.S. monetary policy shocks.
Implications
- Policy relevance:
- Macroeconomic effects of U.S. monetary policy extend to foreign firm investment through multiple, distinct channels.
- Financial vulnerabilities at the firm level—especially leverage and foreign-currency debt exposure—magnify the impact of U.S. monetary policy shocks on investment.
- Trade exposure further amplifies spillovers for export-dependent sectors.
- Aggregate impact:
- The balance sheet channel is likely the dominant mechanism for aggregate firm investment responses to U.S. monetary policy shocks (per authors’ back-of-the-envelope calculations).
U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data, Elif C Arbatli Saxegaard, Melih Firat, Davide Furceri, and Jeanne Verrier, Working Paper No. 2022/191, September 16, 2022.
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