Sign-Dependent Spillovers of Global Monetary Policy | Santiago Camara | ResearchPod

Transcript: Sign-Dependent Spillovers of Global Monetary Policy

Alex: Welcome to another episode of ResearchPod.

Sam: Today we're looking at a paper called "Sign-Dependent Spillovers of Global Monetary Policy" by Santiago Camara. It tackles a puzzle: when big central banks like the US Federal Reserve or the European Central Bank raise interest rates to slow their own economy, it often hurts other countries—with weaker currencies, slower growth, and less trade. But when they cut rates to speed things up, those other countries feel almost no boost.

Alex: So why do rate hikes from these banks hit the world so hard, while cuts barely touch it?

Sam: Standard studies mix hikes and cuts together, hiding the difference. The paper shows hikes create strong negative effects on financial conditions, output, and trade in 44 other economies from 1999 to 2023. Cuts do not create matching positives.

Alex: That means usual models miss how monetary policy spreads unevenly across borders.

Sam: Central banks steer economies by changing interest rates. Higher rates make loans more expensive, so people spend less. Lower rates do the opposite. The paper uses data from quick market reactions right after announcements to find pure, unexpected rate changes—called monetary policy shocks. It finds the global effects come mostly from hikes.

Alex: For places like emerging markets, a Fed hike causes real damage, but easing from the same bank does little.

Sam: Linear models blend weak effects from cuts with strong ones from hikes, understating how uneven this is.

Alex: How did they separate hikes from cuts to reveal this?

Sam: They checked effects separately for hikes—positive shocks—and cuts—negative shocks—without assuming symmetry. Think of it like measuring push and pull forces on a swing separately. They let a country's growth depend on the shock's direction and its size alone. For hikes, they add those; for cuts, they subtract. This shows hikes cause big drops abroad, while cuts barely move things.

Alex: Like testing push versus pull, even if the strength feels similar.

Sam: They applied this to data from 44 countries—19 advanced like Canada and Japan, 25 emerging—from 1999 to 2023. They tracked monthly industrial production, prices, exchange rates against the dollar or euro, and stock prices from sources like the IMF and OECD. Every calculation included current US or Euro Area conditions to isolate pure policy effects.

Alex: And they checked channels like trade?

Sam: To trace paths, they added one variable at a time, like trade volumes or capital flows. Hikes tighten financial conditions abroad—higher borrowing costs, weaker stocks—and hit output and trade harder and longer than cuts help.

Sign-Dependent Spillovers of Global Monetary Policy

Santiago Camara

Feb 9, 2026·5:33·arxiv·Original Paper

Sign-Dependent SpilloversMonetary Policy ShocksAsymmetry in TransmissionHigh-Frequency IdentificationLocal Projection FrameworkSign-dependent impulse responses

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6 min

Summary

Abstract

This paper examines the sign-dependent international spillovers of Federal Reserve and European Central Bank monetary policy shocks. Using a consistent high-frequency identification of pure monetary policy shocks across 44 advanced and non-advanced economies and the methodology of Caravello and Martinez-Bruera, 2024, we document strong asymmetries in international transmission. Linear specifications mask these effects: contractionary shocks generate large and significant deteriorations in financial conditions, economic activity, and international trade abroad, while expansionary shocks yield little to no measurable improvement. Our results are robust across samples, identification strategies, and the framework proposed by Ben Zeev et al., 2023.

Sign-Dependent Spillovers of Global Monetary Policy: Research Paper Podcast

Sign-Dependent Spillovers of Global Monetary Policy

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