@article{Ilzetzki&Jin2021,
title = {The puzzling change in the international transmission of U.S. macroeconomic policy shocks},
journal = {Journal of International Economics},
volume = {130},
pages = {103444},
year = {2021},
issn = {0022-1996},
doi = {https://doi.org/10.1016/j.jinteco.2021.103444},
url = {https://www.sciencedirect.com/science/article/pii/S0022199621000210},
author = {Ilzetzki, Ethan and Jin, Keyu},
keywords = {International spillovers, Exchange rates},
abstract = {We demonstrate a dramatic change over time in the international transmission of US monetary policy shocks. International spillovers from US interest rate policy have had a different nature since the 1990s than they did in post-Bretton Woods period. Our analysis is based on a panel of 21 high income and emerging market economies. Prior to the 1990s, the US dollar appreciated, and ex-US industrial production declined, in response to increases in the US Federal Funds Rate, as predicted by textbook open economy models. The past decades have seen a shift, whereby increases in US interest rates depreciate the US dollar but stimulate the rest of the world economy. Results are robust to several identification methods. We sketch a simple theory of exchange rate determination in face of interest-elastic risk aversion that rationalizes these findings.}
}