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Monetary transmission: Are emerging market and low-income countries different?

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  • Bulíř, Aleš
  • Vlček, Jan

Abstract

We use the Christensen, Diebold, and Rudebusch (2011) representation of the yield curve to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in advanced, emerging market, and low-income countries. We find a robust link from the policy and short-term interbank rates to the longer-term bond yields in all countries. Two policy implications emerge. First, the presence of well-developed secondary markets does not seem to affect transmission of short term rates along the yield curve. Second, the strength of the transmission mechanism seems to be affected by the choice of the monetary regime and the level of development: advanced countries with a credible inflation targeting regime seem to have better-behaved yield curves than the countries with other monetary regimes.

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  • Bulíř, Aleš & Vlček, Jan, 2021. "Monetary transmission: Are emerging market and low-income countries different?," Journal of Policy Modeling, Elsevier, vol. 43(1), pages 95-108.
    • Handle: RePEc:eee:jpolmo:v:43:y:2021:i:1:p:95-108
    DOI: 10.1016/j.jpolmod.2020.06.006
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    More about this item

    Keywords

    Monetary transmission; Yield curve; Emerging market and low-income countries;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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