SPEECH
Globalisation and monetary policy

  
Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the University of California
Los Angeles, 30 September 2019
[1]
It is a pleasure to contribute to UCLA's Master of Applied Economics Distinguished Speaker Series.
Los Angeles is a good setting for me to reflect upon the importance of globalisation: around USD 300
billion of US imports and exports pass through the port here every year - around half of which are to or
from China - while Californian firms are at the forefront of many global industries.[2] Globalisation has
fundamentally reshaped how the major advanced economies operate (including both the euro area and
the United States). The rest of the world is a major destination for the goods and services these design
and produce, while providing a broad choice of imports for domestic producers and consumers.[3]
Alongside this, the financial systems of the advanced economies have been transformed through global
financial flows, while the technological frontier is driven by the global pace of innovation.
It directly follows that central banks must take into account the impact of globalisation on both
macrofinancial dynamics and the transmission mechanisms through which monetary policy operates.
Accordingly, my aim in this lecture is to analyse some dimensions of how globalisation affects the
monetary policy of the ECB. To set the scene, I will first review some key indicators of globalisation. I will
then outline how globalisation can be incorporated into the conceptual frameworks that we employ to think
about monetary policy. And finally, in order to make a direct link between the topic of globalisation and the
current conduct of monetary policy, I will discuss the role of external factors in the current slowdown in the
euro area.
The evolution of financial and economic
globalisation
A fundamental shift in the global economy has been the increasing share of emerging and developing
countries in world GDP, which has characterised the past two decades (Chart 1). Mechanically, it reflects
the higher growth potential of economies that are catching up with advanced economies by closing the
technology gap, improving institutional capacity and fostering the accumulation of physical and human
capital.[4]
And, in the aggregate, faster population growth has also played an important role. Emerging and
developing countries were also somewhat less exposed to the excessive leverage and risk-taking that was
at the root of the 2008-09 global financial crisis, and their resilience during that period (which also reflected
countercyclical fiscal and monetary policy) resulted in a further upward shift in their relative share in global
output and gave the momentum of the world economy a crucial boost.
Chart 1
Evolution of distribution of world GDP in USD
Sources: IMF World Development Indicators and Haver Analytics.
The growing contribution of emerging market economies to global GDP is mirrored in their rising
contribution to global trade, as you can see in Chart 2.
Chart 2
Evolution of distribution of world nominal imports in USD
(percentage shares of total imports)
Sources: IMF World Development Indicators, IMF World Economic Outlook and Haver Analytics. Note: For the euro area,
the data shown reflect imports of goods and services from outside the euro area.
The expansion in international trade has been accompanied by the integration of production activities
across borders, both through the expansion of multinational firms and the complex production chains that
link firms specialising in different production stages across countries (Chart 3).
Chart 3
Global value chain participation
Sources: UNCTAED EORA database and ECB staff calculations.Notes: The global value chain participation figure for
2018 is based on now-casting. The sample includes 190 countries.
Turning to financial globalisation, indicators of international financial trade increased from the early 1990s
until the global financial crisis and have essentially moved in proportion to global output growth since then
(Chart 4).
Chart 4
Evolution of external assets
(percentage shares of world GDP)
Sources: External Wealth of Nations database (Lane and Milesi-Ferretti) and ECB staff calculations. Note: Aggregates for
advanced economies, financial centres and emerging and developing countries are defined as in Lane, P. R. and
MilesiFerretti, G.-M. (2018), "The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the
Global Financial Crisis", IMF Economic Review, 66(1), 189-222.
One explanation for the pause in the rise in cross-border asset holdings is a composition effect. While
emerging economies account for an increasing share of global GDP, these remain less financially
integrated than advanced economies. Another reason is the contraction in debt instruments as a
percentage of world output, which has been partially counterbalanced by a rise in direct investment and, to
a lesser extent, in portfolio equity positions (Chart 5).
In a recent collaboration with Gian Maria Milesi-Ferretti, we have documented that this expansion of
foreign direct investment primarily reflects positions vis-à-vis international financial centres.[5]
This phenomenon is, in turn, related to the corporate structure of large multinational corporations. The
decline in foreign ownership of debt instruments, by contrast, is partly the legacy of the euro debt crisis.[6]
Chart 5
Change in ratio of external assets to world GDP, 2007-17
Sources: External Wealth of Nations database (Lane and Milesi-Ferretti) and ECB staff calculations.
Over time there has also been a substantial increase in the degree of correlation across countries and
across a range of macroeconomic and financial indicators (Chart 6).[7]
While common shocks undoubtedly play a central role in explaining these high correlations, it seems
plausible that the increase in the extent of real and financial linkages may also have contributed to this
pattern. To take just one example, Chart 7 shows the striking correlation between global capital flows and a
global factor of equity returns.[8]
The role of common international factors in the determination of yield curves has also been widely
documented. I will return to the interlinkages between the US dollar and euro-denominated bond yield
curves later on but, at a global level, the demand from emerging and developing economies for safe
assets has been a contributing factor to the compression of term premia both in the United States and in
Europe.[9]
From a central banking perspective, there is much interest in the active research debate on whether and
how globalisation may influence inflation outcomes, with the recent paper by Kristin Forbes just the latest
contribution to this debate.[10]
At the same time, it is worth keeping in mind that the average correlation of inflation across countries has
actually slightly decreased compared with the 1990s. Moreover, while commodity price fluctuations are an
important common factor influencing headline inflation around the world, core inflation is less correlated
across countries than headline inflation. Recent research has also emphasised that cross-country
correlations of inflation tend to be smaller at longer horizons.[11]
Chart 6
Distribution of pairwise cross-country correlations of selected real and financial variables
(y-axis: fraction; x-axis: correlation coefficient)
Sources: Ca' Zorzi, M. et al. (2019) op. cit., IMF World Development Indicators, Bloomberg and IMF Global Financial
Stability Report. Notes: The data cover 53 advanced and emerging economies at annual frequency. The solid line
indicates the median and the dashed line indicates the correlation between the United States and the euro area.
Chart 7
Capital flows and Global Stock Market Factor since the 1990s
Sources: Habib, M. and F. Venditti (2019), op. cit. Notes: Capital flows are a four-quarters moving average of total "gross
capital inflows" aggregated over 50 economies and reported as a percentage of total GDP. The global stock market factor
is constructed from a dynamic factor model for stock returns in 63 countries.Latest observation: Q2 2018.
The increase in international financial integration in recent decades has also been accompanied by the
emergence of larger and more persistent external imbalances. This stands in contrast to the limited
external imbalances observed in the 1960s and 1970s.[12]
While current account imbalances largely narrowed after the global financial crisis, a striking feature of the
current configuration is that the euro area is running a substantial surplus, while the largest external deficit
is run by the United States (Chart 8).
Chart 8
Evolution of current account balances
(percentage shares of world GDP)
Sources: IMF World Economic Outlook and ECB staff calculations.
Chart 9
Evolution of net international investment positions
(percentage shares of world GDP)
In terms of external stock imbalances (the difference between external assets and external liabilities), net
international investment positions remain substantial and have even widened in recent years (Chart 9).
Finally, the denomination of international trade in goods and assets is heavily concentrated in a small set
of currencies: the US dollar has a predominant global role, with the euro the second-ranked global
currency and especially important at the regional level (Chart 10). I will return to the some of the
implications later, but a wider discussion of the international monetary system is beyond the scope of this
lecture.[13]
Chart 10
Snapshot of the international monetary system
(percentages)
Sources: BIS, CLS Bank International, IMF, SWIFT and ECB calculations. See also ECB (2019). Note: The latest data are
for the fourth quarter of 2018 or the latest available.
Globalisation and monetary policy: conceptual
issues
There are several reasons why globalisation has important implications both for the transmission of shocks
and the conduct of monetary policy.
Globalisation and domestic shocks
While enhanced international risk-sharing should dampen the national impact of economic and financial
shocks, the international mobility of factors of capital, labour, finance, firms and technologies can either
amplify or dampen shocks.[14],
[15]
For instance, in relation to amplification, a boost to the domestic business environment can trigger a
larger output response than in a closed economy, since the prospect of higher investment returns and
higher wages draws in capital and labour from abroad. Conversely, a negative shock may be amplified by
capital outflows and net emigration. In terms of cross-border financial integration, a domestic boom-bust
cycle can be amplified if domestic residents take on extra foreign leverage during the upswing that then
requires additional deleveraging during the downturn.
Similarly, in relation to dampening, firms can opt to extend overseas production or switch to imported
inputs if a boom triggers rising domestic cost pressures. In the other direction, if a recession is associated
with a decline in domestic costs, the end of the recession can be brought forward by the entry of foreign
firms and capital that are attracted by the improvement in the cost base. The dampening of the cycle is
also facilitated by international financial risk-sharing, with domestic risks partly transferred to foreign
investors through direct ownership and portfolio equity claims, and domestic residents holding diversified
portfolios that include foreign assets.[16]
A shock to export demand
In a globalised economy, external shocks can be a significant driver of the domestic economy. To illustrate
the importance of the external sector for the performance of the euro area economy, Chart 8 shows results
from a simulation of a negative foreign shock in the ECB's in-house model for the euro area economy, the
New Area-Wide Model II.[17]
In the absence of a monetary policy response, the shock to foreign demand induces substantial declines in
exports, output and inflation. However, a reactive monetary policy dampens the shock, since a reduction of
the policy interest rate improves financial conditions and stimulates domestic consumption and investment.
Chart 11 shows both the potential damage caused by a foreign shock and the pivotal role of monetary
policy in determining the ultimate net impact.[18]
Chart 11
Effects of an export demand shock on euro area GDP
(percentage deviation from trend/steady state)
Sources: New Area-Wide Model II and ECB calculations.Note: An export preference shock is considered to reflect a drop
in exports peaking at 4% deviation from their steady state value. Under exogenous monetary policy the central bank here
is assumed not to change its short-term interest rate for six quarter in response to the shock, which is akin to policy being
constrained by a lower bound on the short-term interest rate. Under endogenous monetary policy the central bank adjusts
its short-term policy rate (a Taylor-rule estimated for the euro area), while the exercise abstracts from other policy
instruments. The model is solved under perfect foresight, see for the technical implementation Adjemian, S. and Juillard,
M. (2014), "Assessing long run risk in a DSGE model under ZLB with the stochastic extended path approach", mimeo.
A shock to tariffs
A further illustration of sensitivity to the external environment can be seen in the impact of a
"deglobalisation" shock that raises trade costs. In recent years, we have observed a surge in protectionist
measures, with a simple metric indicating that the number of harmful interventions has outpaced that of
liberalising interventions, especially since mid-2018 (Chart 12).
Chart 12
Evolution of the number of newly implemented trade policy measures
(number of trade interventions)
Source: Global Trade Alert.Note: Data adjusted for reporting lags.Latest observation: 2018.
Recent trade tensions and existing and prospective threats (including the risk of a hard Brexit) have the
potential to disrupt prices and activity globally.[19]
From a macroeconomic perspective, protectionism can be interpreted as a negative supply shock.[20]
More generally, protectionism can influence prices and activity via several channels. First, the increase in
trade costs may alter the prices and volumes of internationally traded products (the trade channel). To the
extent that producers and distributors pass through the increases in tariff and non-tariff barriers, there will
be upward pressure on the prices of imported inputs and final products. These cost pressures work not
only via directly imported products, but also via complex international production chains that magnify the
effect of any increase in trade costs. Since products cross the border several times during the various
stages of production, tariff costs accumulate due to a cascading effect.[21]
In the short run, firms may absorb cost increases through lower markups, but the increase in costs should
eventually pass through into higher prices. Of course, the way trade cost effects are passed through
crucially depends on the margin adjustment of both exporting and importing firms, which in turn hinges on
several factors, such as the degree of competitiveness in the specific sector, product quality and the
currency of invoicing of trade flows. In addition, the higher prices of imported products can also induce
domestic customers to switch from imported to domestically produced products.
This switch can give rise to allocative distortions along supply chains and affect competitiveness and
productivity as well as, in turn, prices and potential output (the productivity channel). Trade barriers impede
the efficient allocation of production factors across borders and protect domestic industries against foreign
competition. However, these cost-push effects on price dynamics might be counterbalanced to some
extent by an overall decrease in aggregate demand, which has deflationary consequences.
In addition, higher trade costs and rising uncertainty over future trade policies, coupled with financial
stress, could also amplify the impact of rising protectionism on economic activity in the short run. For
example, households and firms may delay spending and investment as prospects become more uncertain.
[22]
In response to uncertainty shocks, firms can also adjust their inventory policies by disproportionately
cutting their foreign orders of intermediate goods, with a disproportionate impact on international trade
flows.[23] Financial risk premia could increase as a result of the re-evaluation of multinational firms and
associated revisions in cross-border financial flows.
Model-based results of a scenario simulating an increase in trade costs illustrate how various transmission
channels operate (Chart 13).[24]
For illustrative purposes, consider a hypothetical case in which the United States raise tariffs and non-tariff
barriers by 10 percent on imports from all trading partners and other countries raise tariffs and non-tariff
barriers by 10 percent on imports from the United States. The results show that the increase in trade costs
would induce domestic consumers and firms in the United States to replace foreign suppliers with
domestic alternatives. However, these positive effects on activity are more than offset by the increase in
prices of imported intermediate and final products and by the reduction in US exports caused by retaliatory
measures. In addition, there could be negative confidence effects, which would further depress US GDP.
Other countries may also gain competitiveness vis-à-vis US producers in third markets. It follows that the
trade effects on activity can be positive for some countries (China and the euro area in this specific
scenario). However, negative confidence effects may outweigh these outcomes. Overall, global trade and
activity could fall substantially as a result of the combined effects via the trade and confidence channels.
Chart 13
Estimated impact of a hypothetical scenario of a mutual increase in tariffs on GDP - first-year
effects
(GDP response, deviation from baseline levels; percentages)
Source: "The economic implications of rising protectionism: a euro area and global perspective", Economic Bulletin, Issue
3, ECB, April 2019.Note: The scenario assumes that the United States increases tariff and non-tariff barriers on imports
from all countries by 10% and US trade partners respond symmetrically.
The international dimension of monetary policy transmission
So far, I have focused on how globalisation affects the propagation of domestic and external shocks.
However, globalisation also shapes the transmission of monetary policy. From a conceptual perspective,
monetary policy spillovers propagate via three channels: (i) an aggregate demand channel; (ii) a
multifaceted financial channel; and (iii) an exchange-rate competitiveness channel. Recent research has
highlighted the importance of understanding all three channels - the second and third channels in
particular may not be as straightforward as presented in textbooks.
First, the aggregate demand channel is simply based on changes in import demand. Since contractionary
monetary policy action curbs consumption and investment, it also entails lower demand for imports. This
constitutes a negative demand shock for the rest of the world and is contractionary for trading partners.
Second, the financial channel works through the effect of domestic policy on foreign financial conditions.
One dimension of the financial channel is based on the effect of the exchange rate on the local-currency
valuation of foreign-currency denominated assets and liabilities. A country that is a net borrower on
international financial markets in US dollars will experience a negative wealth effect when US monetary
policy is tightened. This means that an exchange rate valuation wealth effect implies a contractionary
monetary policy spillover. Such valuation effects can be particularly powerful when exchange rate
fluctuations change the value of collateral denominated in foreign currency, and thereby affect borrowing
and leverage.[25]
Again, given the dominance of the US dollar in global financial markets, spillovers from US monetary
policy through this channel may be particularly sizeable.[26] This channel is especially important for
emerging and developing economies, as these rely more on foreign-currency funding.
Another dimension of the financial channel operates through portfolio rebalancing.[27]
In particular, cross-border portfolio balance effects arise from imperfect substitutability between short and
long-term bond portfolios, as well as between domestic and foreign bonds within investors' portfolios.[28]
Suppose that agents in each country can hold domestic and foreign short and long-term government
bonds, but they cannot perfectly substitute among these four types of bonds. In this set-up, portfolio
balance effects arise as yields react to changes in the relative supply of bonds. For example, a reduction in
the relative supply of euro area long-term bonds due to asset purchases by the ECB leads to a decrease
in long-term yields in the euro area. Since bond supplies directly affect the term premium, this occurs even
when short-term rates are unchanged. In turn, the international portfolio re-balancing channel leads to a
reduction in term premia and long-term yields in the rest of the world, as the ECB's asset purchases
increase through portfolio rebalancing the demand for rest-of-the-world long-term bonds.
Of course, the degree of substitutability across bonds of different maturities and origins is crucial for the
magnitude of spillovers from central bank asset purchases through the portfolio re-balancing channel. For
example, a relatively low elasticity of substitution between short- and long-term bonds implies a sizeable
domestic effect of the ECB's asset purchases on term premia, whereas a relatively high elasticity of
substitution between domestic and rest-of-the-world bonds is key for generating large spillovers from to
rest-of-the-world term premia. In fact, there is empirical evidence suggesting that portfolio re-balancing is
an important conduit for spillovers from central bank asset purchases in large economies.[29]
The financial channel of exchange rates and cross-border portfolio re-balancing are just two dimensions of
a more complex of the more broadly defined financial channel of monetary policy spillovers, and quite
some research - including at the ECB - is under way to shed more light on how monetary policy in
systemic economies affects the rest of the world.
Third, the traditional exchange rate channel of monetary policy spillovers operates through changes in the
relative prices of domestic and foreign goods. A monetary policy tightening generally causes the exchange
rate to appreciate. To the extent that the relative prices of domestic and foreign goods are affected by the
exchange rate appreciation, a monetary policy tightening at home elicits expenditure switching at home
and abroad. Expenditure switching under the exchange rate channel of monetary policy spillovers thus
rotates demand at home and abroad, but where and in which direction the rotation takes place depends on
a string of factors.
Two factors that have received some attention recently are the invoicing currency of exports.[30]
If export prices are sticky in domestic currency, an exchange rate appreciation makes domestic goods less
competitive in world markets, shifting expenditure abroad and at home away from domestic goods. This
traditional analysis is based on the Mundellian assumption of "producer currency pricing" (PCP).[31]
Discussions about the external effects of policy actions in politics and the media are typically implicitly
based on this assumption.
In contrast, if export prices are sticky in a foreign currency, the relative price of imports and domestically
produced goods in terms of the currency of the importer is not affected by the exchange rate appreciation
and exchange rate pass-through is incomplete. In this case, monetary policy spillovers through
expenditure switching are muted. This latter case traditionally corresponds to the setting in which export
prices are sticky in the currency of the importer, referred to as "local currency pricing" (LCP). More recently,
emphasis has shifted to an alternative setting, namely one in which export prices are sticky in a dominant
currency regardless of the trading partners involved, in particular the US dollar. This setting of "dominant
currency pricing" (DCP) has particularly important implications for the global spillovers from US monetary
policy.
The differences in monetary spillovers through expenditure switching under the exchange rate channel
across these different invoicing settings can be illustrated by a scenario analysis using the structural model
for the global economy used at the ECB.[32]
For example, a tightening in US monetary policy that is followed by a multilateral appreciation of the US
dollar elicits a much stronger slowdown in global trade under DCP than under PCP (Chart 14).
The reason is that a larger share of global trade prices is sticky in US dollars under DCP, even if the
related trade does not involve the United States. As a result, a larger share of global imports becomes
more expensive in local currency terms in response to the appreciation of the US dollar, which elicits
expenditure switching from imports to domestically produced goods.
Chart 14
Model simulations of the impact of a US monetary policy shock in ECB-Global
(average effect over one year)
Sources: Georgiadis, G. and S. Mösle, "Introducing dominant currency pricing in the ECB's global macroeconomic
model", International Finance, forthcoming and ECB (2019), "The international role of the euro".
The emphasis on the importance of the currency in which export prices are sticky is not just an academic
curiosity. In fact, as mentioned before, the US dollar is the dominant currency in global trade, notably also
for transactions that do not involve the United States (Chart 15). Emerging economies, in particular,
invoice the bulk of their imports and exports in US dollars. In Europe, the euro assumes a similar role for
trade within the region.
Chart 15
Currency invoicing patterns
Sources: Gopinath, G. (2016), "The International Price System." Jackson Hole Symposium Proceedings, Eurostat and
ECB staff calculations.Note: The data generally cover the time period from 1995 to 2012. AE = advanced economies;
EME = emerging market economies.
There is some support for the model predictions of the importance of US dollar invoicing for monetary
policy spillovers. The degree of exchange rate pass-through to import prices from bilateral changes in the
US dollar is high, while movements of effective exchange rates excluding the US dollar are muted (Chart
16).[33]
Chart 16
Exchange rate pass-through to import prices
(y-axis coefficient estimates with 90% confidence bands; x-axis: years)
Sources: BIS, OECD and ECB staff calculations. Notes: The chart is based on coefficients estimated in a regression of
the changes in import prices on the changes in exchange rates and other controls using quarterly data and including
country and time fixed effects. All variables are in logs. Import and export prices are calculated as unit value indices and
include trade in both goods and services. Exchange rates are defined such that an increase implies a depreciation of the
domestic currency (in effective terms or against the US dollar). The NEER excluding the US dollar is obtained as the
residual from a country-by-country regression of the NEER on the bilateral exchange rate with the US dollar.
Furthermore, ECB research suggests that the output effects from a US dollar appreciation are larger for an
economy receiving spillovers that features a higher export-import US dollar invoicing share differential: that
is, a higher share of exports but a lower share of imports invoiced in US dollars (Chart 17). The
mechanism at play is that net exports suffer more from a US dollar appreciation if a large share of the
exports of the economy receiving the spillovers is invoiced in US dollars, since it implies stronger
expenditure switching in its trading partners away from imports from the economy towards domestically
produced goods in the rest of the world. In turn, net exports suffer less from US dollar appreciation if a
large share of the imports of the economy receiving the spillovers is invoiced in US dollars, since it implies
stronger expenditure switching away from imports from the rest of the world towards domestically
produced goods.
Chart 17
VAR estimates of the global real GDP spillovers from US dollar appreciation and export-import
US dollar invoicing share differentials
Source: Georgiadis, G and Schumann, B. (2019), "Dominant-currency pricing and the global output spillovers from US
dollar appreciation", ECB Working Paper, No 2308.Note: The US dollar appreciation is induced by a positive demand
shock in the United States in VAR models generally estimated for the time period from 1995 to 2018.
Against this conceptual background, let me focus on a policy-relevant empirical question: to what extent
does monetary policy spill over between large economic areas, such as the United States and the euro
area? Recent ECB research addresses this question, finding that US monetary policy has a larger effect
on euro area financial markets than vice-versa (Chart 18).[34]
Chart 18
Estimated spillovers to euro area and US financial markets from Fed and ECB monetary policy
tightening
Source: Ca' Zorzi, M. et al (2019), op. cit. Notes: The solid line shows the median spillover with 68% confidence
bands. The left column shows the responses of euro area variables; the right column shows the responses of US
variables. The corporate bond spread is defined as the option-adjusted spread between a corporate bond with BBB or
lower investment grade rating and a government bond. The government bonds displayed are the German Bund for
A similar picture emerges for monetary policy spillovers to emerging economies. Here, the estimates again
indicate that only US monetary policy affects financial markets in emerging economies (Chart 19). As
shown by Şebnem Kalemli-Özcan at the latest Jackson Hole conference, the evidence suggests that
emerging economies are more vulnerable to spillovers from US monetary policy than advanced
economies, since capital flows to the former group are more risk-sensitive.[35]
In particular, she shows that a tightening of US monetary policy is associated with an increase in risk
premia in asset prices in emerging economies, while those in advanced economies are essentially
unaffected.
Chart 19
Estimated spillovers to global equity markets from Fed and ECB monetary policy tightening
Source: Ca' Zorzi, M. et al (2019), op. cit.Notes: The solid line shows the median impulse response with 68% bands.
While it may be that risk premia in advanced economies are not very sensitive to US monetary policy in
general, these may nevertheless be affected by macro-financial conditions in emerging economies. The
extent to which developments in emerging market economies reverberate in advanced economies
depends on the extent to which policymakers in emerging economies employ countercyclical monetary
and fiscal policies. A positive recent development is that the scope for countercyclical policies in many
emerging economies has increased on the back of the development of local currency financial markets,
the accumulation of substantial foreign reserves and a reduction in their net foreign-currency debt
exposures.[36]
Finally, globalisation not only implies a greater potential for spillovers from shocks in one economy to the
rest of the world, but also a greater potential for these spillovers to spill back to their origin. This is
particularly important for those economies that generate the largest spillovers to the rest of the world. For
example, and as discussed above, US monetary policy emits large spillovers to the rest of the world. If
such large spillovers were accompanied by substantial spillbacks, the calibration of US monetary policy
could incorporate these feedback loops. Similarly, the ECB also has to assess the quantitative significance
of spillback mechanisms in setting monetary policy, which is the subject of ongoing research by ECB staff.
[37]
Of course, the strength of these spillover-spillback loops also depends on the monetary policy reaction
functions in emerging economies: the interdependencies in monetary