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© 2022 International Monetary Fund
WP/22/191
IMF Working Paper
Asia and Pacific Department
U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data1
Prepared by Elif Arbatli-Saxegaard, Melih Firat, Davide Furceri, and Jeanne Verrier
Authorized for distribution by Jay Peiris
September 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
We examine three main channels through which U.S. monetary policy shocks affect firm investment in foreign countries: (1) the balance sheet channel; (2) the financial channel of the exchange rate; and (3) the trade channel. For this purpose, we use quarterly firm-level data for 63 advanced economies (AEs) and emerging market and developing economies (EMDEs) over 1996–2016. Our results suggest an important and independent role for all three key channels. U.S. monetary policy shocks have larger effects on investment for firms that are more leveraged (balance sheet channel), for firms that have a higher share of debt in foreign currency (financial channel of the exchange rate), and for firms that operate in sectors with higher export dependence (trade channel). Back-of-the-envelope calculations suggest that the balance sheet channel is the most important channel of transmission of U.S. monetary policy shocks on aggregate firm investment.
| JEL Classification Numbers: | F4; E5; D2; C3. |
| Keywords: | U.S. monetary policy shocks; international spillovers; investment; firm heterogeneity. |
| Authors’ E-Mail Addresses: | EArbatli@imf.org; MFirat@imf.org; DFurceri@imf.org; JVerrier@imf.org |
| JEL Classification Numbers: | F4; E5; D2; C3. |
| Keywords: | U.S. monetary policy shocks; international spillovers; investment; firm heterogeneity. |
| Authors’ E-Mail Addresses: | EArbatli@imf.org; MFirat@imf.org; DFurceri@imf.org; JVerrier@imf.org |
Title Page
WORKING PAPERS
U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data
Prepared by Elif Arbatli-Saxegaard, Melih Firat, Davide Furceri, and Jeanne Verrier.
Table of Contents
1. Introduction
2. Data and Empirical Framework
2.1. Data
2.2. U.S. Monetary Policy Shocks
2.3. Empirical Strategy
3. Results
3.1. Average Effects
3.2. Spillover Channels and Firm Characteristics
3.3. Robustness Checks
3.4. Back-of-the-Envelope Calculations
3.5. Interactions Between Channels
3.6. Extensions
4. Conclusions
References
Figures
Tables
Annex
Annex 1: Mundell-Fleming Framework
Annex 2: Data
Annex 3: Unconditional Analysis
Annex 4: Conditional Analysis
For helpful comments and suggestions, the authors would like to thank Helge Berger, Olivier Jeanne, Sebnem Kalemli-Ozcan, Minsuk Kim, Ugo Panizza, Can Sever, Cédric Tille and Jonathan Wright, as well as seminar participants at the 2022 FIW Research Conference, 2022 Southwestern Finance Association meetings, International Monetary Fund and Johns Hopkins University.