Transmission Mechanism of U.S. Monetary Policy to Economies

Abstract

Due to the special status of the United States and the U.S. dollar in the world economy, the U.S. monetary policy has a significant spillover effect on the world. Especially since the subprime mortgage crisis in 2007, the U.S. monetary policy has attracted more attention from the world. Combined with the previous literature, this paper finds that the transmission channels of the US monetary policy uncertainty spillover effect include exchange rate expectation channel, financial asset allocation channel, contagion of monetary policy uncertainty, and real option effect. Among them, the channel of exchange rate expectations, the channel of financial asset allocation and the channel of contagion of monetary policy uncertainty are responsive and rapid, while the real option effect has a slow and long-term impact on the real economy. At the same time, there are differences in the spillover effects of U.S. monetary policy uncertainty on different countries. The results of this study have certain guiding significance for monetary policy formulation in other countries, such as strengthening the supervision of cross-border bonds and cross-border investment. Especially under the impact of the new crown pneumonia epidemic, major developed economies have implemented a new round of quantitative easing monetary policies, and policymakers in emerging economies need to pay great attention to this.