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Trouble Every Day: Monetary Policy in an Open Emerging Economy

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  • Pirozhkova, Ekaterina
  • Ricco, Giovanni
  • Viegi, Nicola

Abstract

Four factors drive the high-frequency impact of monetary policy announcements in South Africa: affecting short-, mid-, and long-term yield curve, as well as country risk. Controlling for information effects, we build IVs to study the transmission of conventional monetary policy, forward guidance, term premia, country risk and information shocks. Our findings reveal textbook contractionary effects of conventional monetary policy. Policy communication, particularly forward guidance, has persistent effects on output and prices. Country risk is a novel and powerful channel of monetary policy communication in emerging markets. By defending its independence, re-stating its inflation target objective, and addressing external shocks, the central bank can mitigate country risk and generate strong expansionary effects.

Suggested Citation

  • Pirozhkova, Ekaterina & Ricco, Giovanni & Viegi, Nicola, 2024. "Trouble Every Day: Monetary Policy in an Open Emerging Economy," CEPR Discussion Papers 19094, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19094
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    References listed on IDEAS

    as
    1. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    2. Kurt G. Lunsford, 2020. "Policy Language and Information Effects in the Early Days of Federal Reserve Forward Guidance," American Economic Review, American Economic Association, vol. 110(9), pages 2899-2934, September.
    3. Cook, Timothy & Hahn, Thomas, 1989. "The effect of changes in the federal funds rate target on market interest rates in the 1970s," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 331-351, November.
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    More about this item

    Keywords

    Monetary policy; Small open economy; Emerging markets; Inflation targeting;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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