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Abstract

Using quantile regression and orthogonalized high-frequency surprises, I estimate effects of US monetary shocks on international downside growth risks, in a panel of 20 AEs and EMEs from 1988-2016. It is shown that contractionary US monetary shocks lead to decreases in low quantiles of international projected growth, thereby amplifying downside risks up to 9 quarters after the shock. Heterogeneity exists in the magnitude of spillover at the country level, related to features including financial openness, ex-ante financial conditions, aggregate debt levels and near-term credit growth. Furthermore, effects of shocks are largely insignificant for median and upside growth projections. The results suggest that US monetary surprises primarily impact the lower segment of conditional growth distributions of international economies, which might be hard to rationalize in a conventional setup via induced interest rate and risk premia changes. In view of the empirical estimates, I propose a financial constraint view of tail risks spillover, where US contractionary shocks tighten financial and credit constraints in foreign economies, contributing to amplification effects under downside growth realizations.

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