IMF Working Papers

Spillovers from United States Monetary Policy on Emerging Markets : Different This Time?

Author/Editor:

Jiaqian Chen ; Tommaso Mancini Griffoli ; Ratna Sahay

Publication Date:

December 24, 2014

Electronic Access:

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Summary:

The impact of monetary policy in large advanced countries on emerging market economies—dubbed spillovers—is hotly debated in global and national policy circles. When the U.S. resorted to unconventional monetary policy, spillovers on asset prices and capital flows were significant, though remained smaller in countries with better fundamentals. This was not because monetary policy shocks changed (in size, sign or impact on stance). In fact, the traditional signaling channel of monetary policy continued to play the leading role in transmitting shocks, relative to other channels, affecting longer-term bond yields. Instead, we find that larger spillovers stem more from structural factors, such as the use of new instruments (asset purchases). We obtain these results by developing a new methodology to extract, separate, and interpret U.S. monetary policy shocks.

Series:

Working Paper No. 14/240

Subject:

Bond markets Capital flows Emerging markets Equity markets Exchange rates International finance Monetary policy Regression analysis Spillovers United States