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

This study examines the transmission of U.S. monetary policy shocks to Latin America, focusing on their interrelationship with the rest of the world through trade links. To this end, the GVAR approach is used, which allows for the analysis of interdependence at the country and variable levels, using monthly data from 2003 to 2014. Since, for much of the sample period, the Fed’s policy rate is close to the lower bound of zero, an alternative measure known as the “shadow Fed rate” is used. The results show that a contractionary monetary policy shock in the U.S. leads to a significant and persistent decline in economic activity and prices in the countries of the region.