Monetary policy decisions by the Federal Reserve System in the US are widely recognised to have spillover effects on the rest of the world. In this paper, we focus on the asymmetric effects of US monetary policy shocks on macro-financial outcomes in emerging market economies (EMEs). We shed light on how domestic factors shape external monetary policy spillover effects using indicators on the macro-financial vulnerabilities and monetary policy stances of EMEs. We find that a surprise tightening of monetary policy in the US leads to an immediate tightening of financial conditions which leads to a decline in activity and prices in EMEs over one year. Importantly, these effects are amplified in periods of high vulnerabilities and attenuated when EMEs follow a prudent monetary policy stance. Our findings help explain the greater resilience of many EMEs to the Fed’s post-COVID-19 tightening cycle, and highlight the benefits of the broad improvements of monetary policy frameworks in these countries.
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