The estimations show that in most cases, including Mexico, monetary conditions in the US have a statistically significant effect on EMEs policy rates (see Appendix). That is, in response to a more accommodative monetary policy stance in the US, central banks in EMEs have reduced their policy rate.
This means that the inflation and output gaps do not capture all the impact of external events on the domestic economy and, accordingly, central banks react to the US monetary conditions (Figure 14 for the case of México). As Rey (2013) has suggested, the U.S. monetary policy is a key determinant of the so-called global financial cycle.