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  4. May 2024
  5. Global Spillovers from Fed Hikes and a Strong Dollar: The Risk Channel

AEA Papers and Proceedings

ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)

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Global Spillovers from Fed Hikes and a Strong Dollar: The Risk Channel

  • José Cristi
  • Şebnem Kalemli-Özcan
  • Mariana Sans
  • Filiz Unsal
AEA Papers and Proceedings
vol. 114, May 2024
(pp. 157–62)
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Abstract

We study the international transmission of US monetary policy shocks and a strong US dollar. We show that monetary tightening is linked to a higher risk premium, only in emerging markets, measured by deviations from uncovered interest parity. An appreciation of the US dollar, on the other hand, does not lead to higher risk premia anywhere, even though countries' currencies depreciate vis-à-vis the dollar. Our interpretation is that monetary policy shocks are a better proxy for global financial conditions than the exchange rate movements that may be capturing more fundamental shocks.

Citation

Cristi, José, Şebnem Kalemli-Özcan, Mariana Sans, and Filiz Unsal. 2024. "Global Spillovers from Fed Hikes and a Strong Dollar: The Risk Channel." AEA Papers and Proceedings, 114: 157–62. DOI: 10.1257/pandp.20241070

Additional Materials

JEL Classification

  • E52 Monetary Policy
  • E58 Central Banks and Their Policies
  • F31 Foreign Exchange
  • F42 International Policy Coordination and Transmission