Do Central Banks Follow the Fed?
We study how central banks respond to U.S. monetary shocks. Using a newly constructed dataset on monetary policy meetings (the MPM-dataset), we show that emerging-market (EME) central banks systematically move in tandem with the Fed, whereas advanced-economy central banks do not. We attribute this heterogeneity to the asymmetric spillovers of U.S. monetary policy on firms’ marginal costs. A three-bloc open-economy New Keynesian model with dominant currency pricing and partial debt dollarization reproduces these empirical patterns, highlighting that EME responses stem from the immediate impact of Fed shocks on exchange rates and, in turn, on marginal costs.
Coverage: Peterson Institute for International Economics
Seminars and conferences: Universidad de los Andes, Chile; University of Notre Dame; IMF–BoE–BIS–ECB Conference on Global Spillovers 2026; Getulio Vargas Foundation; Universidad de los Andes, Colombia; Banco Central de la República; University of California, Berkeley.