Discussion Paper

How Much Can the Fed’s Tightening Contract Global Economic Activity?

Abstract: What types of foreign firms are most affected when the Federal Reserve raises its policy rate? Recent empirical research used cross-country firm level data and information on input-output linkages and finds that the impact on sales and investment spending is largest in sectors with exposure to trade in intermediate goods. The research also finds that financial factors drive differences, with U.S. monetary policy spillovers having a much smaller impact on firms that are less financially constrained.

Keywords: U.S. monetary policy spillovers; Foreign firms; international production linkages; financial constraints;

JEL Classification: E52; F0;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2023-02-13

Number: 20230213