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Heterogeneous effects in the international transmission of the US monetary policy: a factor augmented VAR perspective

Lookup NU author(s): Dr Anastasios Evgenidis



This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).


This paper analyses the international transmission of US monetary policy shocks. We use a time-varying, factor-augmented VAR framework to examine how and to what extent the propagation of US policy shocks affects the South East Asian (SEA) and European Union (EU) economies, through various transmission channels. We find that in the SEA economies, the income absorption effect is the most pronounced channel as indicated by the significant worsening of the trade balance of these countries, which provokes a reduction in their output. In addition, wealth effects and the balance sheet channel have an important contribution in the transmission of the shock to these economies. In the EU, the initial rise observed in output as a result of the shock is driven more by exchange rate movements rather than movements in the trade balance. In terms of changes in the magnitude of the effect of the shock over time, we find that the deepening of global integration dampens the effect of the shock on the foreign economies in core macroeconomic and financial variables. Moreover, the impact of the shock on the foreign economies has increased in the post-crisis period.

Publication metadata

Author(s): Evgenidis A, Philippas D, Siriopoulos C

Publication type: Article

Publication status: Published

Journal: Empirical Economics

Year: 2019

Volume: 56

Issue: 5

Pages: 1549-1579

Print publication date: 01/05/2019

Online publication date: 14/06/2018

Acceptance date: 29/11/2017

Date deposited: 15/06/2018

ISSN (print): 0377-7332

ISSN (electronic): 1435-8921

Publisher: Springer


DOI: 10.1007/s00181-018-1448-1


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