Transmission of U.S. Monetary Policy Shocks to Latin America: A GVAR Approach

This paper studies the international spillovers of US monetary policy shocks across Latin American countries through trade linkages. The approach used is a GVAR model that allows to study the interdependence of countries and variables using monthly data from 2003 to 2014. In addition, given that the federal funds rate has been in the zero lower bound since the financial crisis, the paper uses an alternative measure of Fed interest rate built by Wu & Xia (2014) called the “shadow federal funds rate”. The paper concludes that a contractionary monetary policy shock in US has the expected impact on domestic US variables and a persistent and negative effect over economic activity and prices in Latin American countries. (Audio: Department of Economic Publications)