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Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks

Georgiadis, Georgios, Jančoková, Martina, (2017), «Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks», ECB, Ιούνιος

A salient feature of the global economy since the 1990s has been the dramatic rise of financial globalisation. Whether measured by capital flows or indicators reflecting the extent of legal capital account restrictions, economies’ financial markets have been exhibiting an increasing degree of interdependence. As a result, the global economy has become subject to large crosscountry spillovers through financial channels. At the same time, important advances in structural monetary macroeconomic modelling have been achieved over the last two decades. In particular, New Keynesian dynamic stochastic general equilibrium (NK DSGE) models have been established as the standard monetary macroeconomic model. However, despite progress in structural macroeconomic modelling (e.g. financial frictions) many, in particular mediumscale, models used for the analysis of monetary policy still do not routinely account for crosscountry financial spillover channels.

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