Monetary News in the United States and Business Cycles in Emerging Economies

Posted: 22 Jun 2020

See all articles by Alejandro Vicondoa

Alejandro Vicondoa

Pontificia Universidad Catolica de Chile

Date Written: 2019


This paper identifies anticipated (news) and unanticipated (surprise) shocks to the U.S. Fed Funds rate using Fed Funds futures contracts, and assesses their propagation to emerging economies. Anticipated shocks are identified as the expected change in the Fed Funds rate orthogonal to expected U.S. business cycle conditions while unanticipated shocks are the one-step ahead forecast error. Anticipated shocks explain around half of the narrative series of U.S. monetary policy shocks. To identify the effects of both shocks, I estimate a Panel VAR using a sample of emerging economies. An anticipated 25 basis points contractionary U.S. interest rate shock induces a fall of 0.5 percent in GDP from its trend two quarters before the shock materializes. Both anticipated and unanticipated changes in the U.S. interest rate cause significant and quantitatively similar effects. The increase of the U.S. BAA corporate spread in response to both shocks significantly exacerbates the response of emerging economies. After accounting for anticipation, U.S. interest rate shocks explain 14 percent of business cycle fluctuations in emerging economies.

Keywords: U.S. interest rate, international business cycles, news shocks, emerging economies

JEL Classification: E32, E52, F41, F44

Suggested Citation

Vicondoa, Alejandro, Monetary News in the United States and Business Cycles in Emerging Economies (2019). Journal of International Economics, Vol. 117, 2019, Available at SSRN:

Alejandro Vicondoa (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Avda. Vicuña Mackenna 4860
Macul, 780436

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