U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations

January 19, 2024

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Giovanni Ugazio, and Weining Xin. U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations, (USA: International Monetary Fund, 2024) accessed November 12, 2024

Disclaimer: 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.

Summary

We empirically examine U.S. monetary policy spillovers to the Middle East and Central Asia (ME & CA) region by decomposing U.S. interest rates changes into two orthogonal shocks: the pure monetary policy shock and the information news shock. Using a sample of 16 ME & CA countries, we find that when interest rates increase, the two shocks have opposite spillovers on the region. Tightening driven by contractionary monetary policy shocks hinders growth, while tightening driven by positive information news shocks boosts growth despite higher interest rates. Countries with weaker fundamentals face more negative spillovers from contractionary monetary policy shocks but may sometimes benefit more from positive information news shocks. Moreover, high oil prices mitigate both spillovers for oil exporters while global risk appetite amplifies both spillovers. Finally, we estimate a large degree of heterogeneity in the impact of the 2022 U.S. tightening cycle on ME & CA countries, with oil exporters with stronger fundamentals withstanding well the shock and oil importers with weaker fundamentals being hit the most.

Subject: External debt, Financial sector policy and analysis, International trade, Monetary policy, Monetary tightening, Oil exports, Oil prices, Prices, Spillovers

Keywords: Fundamentals, Global, Information news shock, Middle East and Central Asia, Monetary policy shock, Monetary policy spillover, Monetary tightening, Oil exports, Oil prices, Spillovers, Spillovers to Middle East, Summary statistics table, U.S. monetary policy

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/014
Stock No:

WPIEA2024014
ISBN:

9798400263101
ISSN:

1018-5941

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