Spillovers of Us Interest Rates : Monetary Policy & Information Effects

This paper quantifies the spillovers of US monetary policy in Emerging Market economies. By imposing sign restrictions on the high-frequency surprises of the Fed Fund Futures and the S\&P 500 I am able to identify two distinct FOMC shocks: a pure US monetary policy and an information disclosure shock. On the one hand, a US tightening caused by a pure US monetary policy shock produces a recession, an exchange rate depreciation and tighter financial conditions. On the other hand, a tightening of US monetary policy caused by the FOMC disclosing positive information about the state of the US economy produces an economic expansion, an exchange rate appreciation and laxer financial conditions. These results help explain atypical dynamics found by recent literature. Augmenting the benchmark model with additional variables I argue that the financial channel is the main propagation mechanism of US interest rates into Emerging Markets