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Trouble Every Day: Monetary Policy in an Open Emerging Economy

Author

Listed:
  • Ekaterina Pirozhkova

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Giovanni Ricco

    (CREST, Ecole Polytechnique, 5 Av. Le Chatelier, 91120 Palaiseau, France)

  • Nicola Viegi

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

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

  • Ekaterina Pirozhkova & Giovanni Ricco & Nicola Viegi, 2024. "Trouble Every Day: Monetary Policy in an Open Emerging Economy," Working Papers 202442, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202442
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    Keywords

    Monetary policy; Small Open Economy; Inflation Targeting; Exchange Rates.;
    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
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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