Monetary policy spillovers among five systemic economies: Evidence from the time and frequency domains

Abstract

Using the spillover index and frequency decomposition approach, this study explores the direction and magnitude of cross-border monetary policy spillovers among five systemic economies (S5): the United States, the Euro area, Japan, the United Kingdom, and China. The results suggest that China is the largest receiver and delivers the least to the other countries. Further, the findings reveal that massive monetary easing led by unconventional monetary policy implemented at home can transmit spillovers abroad. Notably, the overall spillover index peaks during a crisis. Moreover, both the static and dynamic frequency results show that short-term effects dominate spillovers. These findings suggest that both policymakers and investors should prevent foreign beggar-thy-neighbour monetary policies.