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Should emerging markets worry about U.S. monetary policy announcements ?

Author

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  • Gupta,Poonam - DECOS
  • Masetti,Oliver
  • Rosenblatt,David

Abstract

This paper analyzes the spillover effects of U.S. monetary policy announcements on emerging market economies since end-2008, the period coinciding with the use of unconventional policy measures. Monetary policy surprises are measured by changes in two-year Treasury yields in short windows of time around the Federal Reserve Board?s policy announcements. The analysis finds that U.S. monetary policy surprises have a significant impact on emerging economies'exchange rates, equity prices, and bond yields. The impact is larger for surprise tightening of policy than for surprise easing. The impact is disproportionately larger for large surprises, implying that emerging markets are relatively insulated from anticipated policy announcements. The spillover effects of policy announcements of other advanced economies, such as the euro area, Japan, and United Kingdom, are found to be much weaker than those of the United States.

Suggested Citation

  • Gupta,Poonam - DECOS & Masetti,Oliver & Rosenblatt,David, 2017. "Should emerging markets worry about U.S. monetary policy announcements ?," Policy Research Working Paper Series 8100, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8100
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    File URL: http://documents.worldbank.org/curated/en/775321497019227117/pdf/WPS8100.pdf
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    Citations

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    Cited by:

    1. Nahiyan Faisal Azad & Apostolos Serletis, 2020. "Monetary policy spillovers in emerging economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(4), pages 664-683, October.
    2. Carrillo, Julio A. & Elizondo, Rocio & Hernández-Román, Luis G., 2020. "Inquiry on the transmission of U.S. aggregate shocks to Mexico: A SVAR approach," Journal of International Money and Finance, Elsevier, vol. 104(C).

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