Global impacts of US monetary policy uncertainty shocks

We build a new empirical model, which admits time-varying variances of local structural shocks, to estimate the global impact of an increase in the volatility of US monetary policy shocks. By allowing for rich dynamic interaction between the endogenous variables and time-varying volatility in the global setting, we find that US interest rate uncertainty not only drives local output and inflation volatility, but also causes declines in output, inflation, and the interest rate. Moreover, we document strong global impacts, making the world move in a very synchronous way. Crucially, spillback effects are found to be significant even for the US economy.