Globalization and monetary policy comovement: International evidence

•This paper studies comovement in monetary policy of advanced economies in the period 1980–2009.•I estimate a dynamic factor model in the panel of residuals of the Taylor rules.•The common factor explains 24% of residual variation in monetary policy.•I document that the common factor is more important with rise in trade integration.

This paper empirically characterizes the comovement in monetary policy of five advanced economies in the period 1980–2009. I estimate a Taylor rule for each country and use the residual of the Taylor rules to estimate a dynamic latent factor model with common and Europe-specific factors. I quantify the importance of the common factor in explaining comovement in the residual variation of monetary policy and show that the common factor is particularly important during a period of globalization (1988–2003). I estimate the dynamics of the importance of the common factor using rolling sub-samples and show that trade-openness increases the importance of the common factor in monetary policy in the US.