Expansionary fiscal policies have increased significantly following the subprime crisis in 2007, leading to fiscal dominance, where the monetary authority is forced to deviate from policy targets to accommodate fiscal policies. Meanwhile, peripheral economies are constantly influenced by monetary and fiscal conditions in centre economies, with the United States (U.S.) as the predominant force. In light of this development, this study employs panel regressions and panel VAR models to examine the potential international spillovers from U.S. fiscal dominance to the policy interest rates in Emerging Market Economies (EMEs) and Developed Economies (DEs). We introduce a new measurement of fiscal dominance using principal components analysis and extend the concept to an international perspective, as opposed to previous literature, which has examined fiscal dominance in a domestic environment. The results, along with the robustness checks, show that U.S. fiscal dominance negatively affects the policy rates in both EMEs and DEs, with a greater impact observed in EMEs. Moreover, a high degree of financial repression and a low degree of foreign investor appetite are associated with larger spillover effects from U.S. fiscal dominance. Our findings suggest that policymakers need to consider the effects of U.S. fiscal dominance when designing macroprudential policies. Policies should aim to boost foreign liability inflows and reduce financial repression to build resilience against spillover effects on policy rates from the U.S. fiscal dominance.

We analyze the interaction between monetary policy in the US and the global economy proposing a new class of Bayesian global vector autoregressive models that accounts for time-varying parameters and stochastic volatility (TVP-SV-GVAR). Our results suggest that US monetary policy responds to shocks to the global economy, in particular to global aggregate demand and monetary policy shocks. On the other hand, US-based contractionary monetary policy shocks lead to persistent international output contractions and a drop in global inflation rates, coupled with rising interest rates in advanced economies and a real depreciation of currencies with respect to the US dollar. We find considerable evidence for heterogeneity in the spillovers across countries, as well for changes in the transmission of monetary policy shocks over time. (authors' abstract) / Series: Department of Economics Working Paper Series

This work investigates the international spillover effects and transmission channels of Unconventional Monetary Policy (UMP) of major central banks from United States, United Kingdom, Japan and Europe to Latin-American countries. A Global VAR model is estimated to analyze the impact on output, inflation, credit, equity prices and money growth on the selected countries. Results suggest that indeed, there are international spillovers to the region with money growth, stock prices and international reserves as the main transmission channels. In addition, outcomes are different between countries and variables implying not only that transmission channels are not same across the region but also that the effects of the monetary policy are not distributed equally. Furthermore, it is found evidence that for some countries transmission channels may have transformed due to the crisis. Finally, effects of UMP during the crisis were in general positive with exception of Japan indicating that policies from this country brought more costs than benefits to the region. Keywords Zero Lower Bound, Unconventional Monetary Policy, International Spillovers, Global VAR, GVAR.

The dissertation consists of four empirical papers in the field of monetary economics. The first paper examines the extent of real exchange rate misalignment in the selected euro area countries, the next two papers shed light on macroeconomic spillovers in the remaining EU countries which are not part of the single currency area, while the last paper focuses on the exchange rate pass-through in the Czech Republic.