(DP 2004-05) International Transmission of US Monetary Policy Shocks: VAR Evidence from the Philippines

Based on Soyoung Kim's previous work for non-US G6 countries, I use eveidence from recursive vector autoregressions (VARs) in order to analyze the international transmission mechanism of expansionary US monetary policy shocks to other countries. The method not only attempts to ascertain the workings of the mechanism itself, but it also tries to discern which theoretical model's predictions (Mundell-Fleming vs. the intertemporal model of Obstfeld and Rogoff) fit the data best. For the Philippines, at least, the initial evidence suggests that the transmission mechanism follows the traditional Mundell-Fleming model (a US monetary expansion is beggar-thy-neighbor and works primarily through exchange rate and trade balance effects).