Sign-Dependent Spillovers of Global Monetary Policy

2026-02-09

AI Summary

This study investigates whether the international spillovers of monetary policy shocks from the Federal Reserve and the European Central Bank exhibit sign dependence—specifically, whether contractionary and expansionary policies generate asymmetric effects abroad. Using a high-frequency event study approach to identify exogenous monetary policy shocks across 44 economies, and employing the nonlinear spillover frameworks developed by Caravello and Martinez-Bruera (2024) and Ben Zeev et al. (2023), the analysis reveals that contractionary shocks significantly tighten foreign financial conditions, dampen economic activity, and reduce international trade, whereas expansionary shocks produce virtually no detectable positive spillovers. These findings uncover a pronounced asymmetry that standard linear models overlook, and the results remain robust across alternative samples and identification strategies.

Technology Category

• Game Theory and Economic Paradigms: Coordination and Collaboration
• Cognitive Modeling & Cognitive Systems: Neural Spike Coding
• Machine Learning: Mixture of Experts (MoE)

Application Category

• Economics, Online Markets and Human Computation: The sharing economy
• Security and Privacy: Large-scale security measurements
• Web Mining and Content Analysis: Content-based information diffusion

Abstract

This paper examines the sign-dependent international spillovers of Federal Reserve and European Central Bank monetary policy shocks. Using a consistent high-frequency identification of pure monetary policy shocks across 44 advanced and non-advanced economies and the methodology of Caravello and Martinez-Bruera, 2024, we document strong asymmetries in international transmission. Linear specifications mask these effects: contractionary shocks generate large and significant deteriorations in financial conditions, economic activity, and international trade abroad, while expansionary shocks yield little to no measurable improvement. Our results are robust across samples, identification strategies, and the framework proposed by Ben Zeev et al., 2023.

Problem

• monetary policy spillovers
• sign-dependent effects
• international transmission
• asymmetric effects
• central bank shocks

Innovation

• sign-dependent spillovers
• monetary policy shocks
• high-frequency identification
• asymmetric transmission
• international spillovers