The Global Financial Cycle and US Monetary Policy in an Interconnected World

43 Pages Posted: 4 Dec 2019 Last revised: 6 Jan 2020

Multiple version iconThere are 2 versions of this paper

Date Written: December 2, 2019


We assess the international spillovers of US monetary policy with a large-scale global VAR which models the world economy as a network of interdependent countries. An expansionary US monetary policy shock contributes to the emergence of a Global Financial Cycle, which boosts macroeconomic activity worldwide. We also find that economies with floating exchange rate regimes are not fully insulated from US monetary policy shocks and, even though they appear to be relatively less affected by the shocks, the differences in responses across exchange rate regimes are not statistically significant. The role of US monetary policy in driving these macrofinancial spillovers gets even reinforced by the complex network of interactions across countries, to the extent that network effects roughly double the direct impacts of US monetary policy surprises on international equity prices, capital flows, and global growth. This amplification increases as countries get more globally integrated over time, suggesting that the evolving network is an important driver for the increasing role of US monetary policy in shaping the Global Financial Cycle.

Keywords: trilemma, Global Financial Cycle, monetary policy spillovers, network effects

JEL Classification: C32, E52, F40

Suggested Citation

Dées, Stéphane and Galesi, Alessandro, The Global Financial Cycle and US Monetary Policy in an Interconnected World (December 2, 2019). Banco de Espana Working Paper No. 1942 (2019), Available at SSRN: or

Stéphane Dées (Contact Author)

Banque de France ( email )


Alessandro Galesi

Banco de España ( email )

Alcala 50
Madrid 28014

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