The Spill-back and Spillover Effects of US Monetary Policy: Evidence on an International Cost Channel

Abstract: We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical “spill-back” pattern differs from the predictions of typical open-economy macro models. We also document a new empirical “spillover” effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel - their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions.

[NBER WP]

DOI: 10.3386/w33811

Recommended citation: Yao Amber Li, Lingfei Lu, Shang-Jin Wei and Jingbo Yao. "The Spill-back and Spillover Effects of US Monetary Policy: Evidence on an International Cost Channel." NBER Working Paper Series No. w33811 (2025).