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Published in: Journal of Economics and Finance 3/2022

04-04-2022

U.S. monetary policy and the predictability of global economic synchronization patterns

Authors: Mehmet Balcilar, Riza Demirer

Published in: Journal of Economics and Finance | Issue 3/2022

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Abstract

This paper proposes output gap dispersion as a measure of economic synchronization patterns across the world economies. Utilizing a novel, multivariate quantile causality testing methodology and data from a set of 45 advanced and emerging nations, we present evidence of significant causal effects of U.S. monetary policy measures over synchronization patterns across the advanced and emerging economy business cycles, even after controlling for various risk and uncertainty proxies. While U.S. monetary policy actions cause significant interdependence in business cycles across advanced economies, we find that the Fed’s policy decisions also contribute to uncertainty in industrial output patterns. U.S. monetary policy actions are also found to have significant causal effects on the dispersion of emerging market output gaps at low quantiles, suggesting that policy actions by the U.S. Fed drive synchronized economic activity across emerging nations. The findings have significant implications, particularly for policy makers in emerging economies, when it comes to the coordination of their domestic as well as regional monetary policies in response to monetary policy shocks from the U.S.

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Footnotes
1
The data for SSR and EMS are available from the Reserve Bank of New Zealand and the data for EPU index is available at http://​www.​policyuncertaint​y.​com/​.
 
2
The great bond massacre (Fortune, 1994) by Al Ehrbar. Fortune magazine, February 3, 2013.
 
3
This period also coincides with the announcement of the quantitative easing program by the European Central Bank.
 
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Metadata
Title
U.S. monetary policy and the predictability of global economic synchronization patterns
Authors
Mehmet Balcilar
Riza Demirer
Publication date
04-04-2022
Publisher
Springer US
Published in
Journal of Economics and Finance / Issue 3/2022
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-022-09577-9

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