Global monetary policy spillovers and cross-border credit in a small open economy: Evidence from Fiji

Abstract

This study analyses the impact of global monetary policy on Fiji’s macroeconomic dynamics by focusing on cross border flows, exchange rate, output and interest rate. We used the structural vector autoregressive (SVAR) model and quarterly data from 2003 to 2024 to identify the spillover channels of international monetary policy. Our findings suggest that Fiji’s macroeconomic variables are strongly influenced by global monetary policy proxied by US monetary policy. Specifically, an increase in the Federal Fund Rate is associated with a decline in cross-border claims and simultaneous rise in cross-border liabilities of Fiji. The impacts are primarily operated through the exchange rate channel, where exchange rate management leads to fluctuations in cross-border flows. These results highlight Fiji's vulnerability to external shocks and its policy trade-offs in a globally integrated environment.