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Volatility spillovers of unconventional monetary policy to emerging market economies

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  • Apostolou, Apostolos
  • Beirne, John

Abstract

Emerging market economies (EMEs) have experienced waves of market volatility since the global financial crisis, with some commentators ascribing this at least partly related to monetary policy decisions in advanced economies. This paper examines volatility spillovers from changes in the size of the balance sheets of the Federal Reserve (FED) and European Central Bank (ECB) to EMEs from 2003 to 2018. We find that volatility spillovers to EME currency markets are greater in magnitude from the FED, while EME stock and bond markets are also vulnerable to volatility spillovers in a similar magnitude from both the ECB and the FED. We find only limited evidence of volatility transmission to the real economy of EMEs following the monetary policy actions of the FED and ECB. Finally, we show that the proportion of the volatility in EMEs that is accounted for by changes in FED and ECB balance sheets shifts over time. Our paper has important policy implications for EMEs, notably in respect of volatility transmission channels.

Suggested Citation

  • Apostolou, Apostolos & Beirne, John, 2019. "Volatility spillovers of unconventional monetary policy to emerging market economies," Economic Modelling, Elsevier, vol. 79(C), pages 118-129.
    • Handle: RePEc:eee:ecmode:v:79:y:2019:i:c:p:118-129
    DOI: 10.1016/j.econmod.2018.10.006
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    More about this item

    Keywords

    Unconventional monetary policy; Central bank balance sheets; Volatility spillovers; Financial markets;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G1 - Financial Economics - - General Financial Markets

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