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Unemployment dynamics in emerging countries: Monetary policy and external shocks

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  • Horvath, Jaroslav
  • Zhong, Jiansheng

Abstract

This paper quantifies the impact of three key external shocks – external demand, interest rate, and uncertainty shocks – on emerging market economies (EMEs). We find that external shocks have a sizeable impact on macroeconomic fluctuations in EMEs and that a considerable fraction of this impact is through the domestic stock market. A decrease in external demand and an increase in external interest rate and uncertainty lead to a higher unemployment rate, lower stock market return, and a depreciation of the domestic currency. The EMEs' monetary policy actively responds to external shocks and dampens their impact on domestic activity.

Suggested Citation

  • Horvath, Jaroslav & Zhong, Jiansheng, 2019. "Unemployment dynamics in emerging countries: Monetary policy and external shocks," Economic Modelling, Elsevier, vol. 76(C), pages 31-49.
    • Handle: RePEc:eee:ecmode:v:76:y:2019:i:c:p:31-49
    DOI: 10.1016/j.econmod.2018.07.017
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    More about this item

    Keywords

    Unemployment dynamics; Monetary policy; External shocks; Emerging markets;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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