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The transmission of unconventional monetary policy to the emerging markets

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  • Bank for International Settlements

Abstract

Highly accommodative monetary policies in the major advanced economies and the questions about the exit from such policies have created major challenges for policymakers in emerging market economies (EMEs). Quite a few of EMEs that experienced rapid capital inflows and strong currency appreciation pressures during 2010-12 saw a sharp reversal in episodes of market volatility from May 2013 to February 2014. This meeting of Deputy Governors focussed on three main questions: (i) How can external monetary conditions become a source of risks to monetary and financial stability in EMEs? (ii) How should central banks respond to such shocks? (iii) And, can there be a greater international role for emerging market currencies? A key conclusion from the discussion is that asset prices and interest rates have become more correlated globally during the period of unprecedented monetary easing by advanced economies. One major worry was the risk of an abrupt reversal of capital inflows to EMEs. Central banks face difficult policy dilemmas in preserving financial stability while pursuing their monetary policy goals. It is hard for EME monetary authorities to counter a prolonged period of very low long-term interest rates and increased risk-taking in global financial markets.

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  • Bank for International Settlements, 2014. "The transmission of unconventional monetary policy to the emerging markets," BIS Papers, Bank for International Settlements, number 78.
    • Handle: RePEc:bis:bisbps:78
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    References listed on IDEAS

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    1. Mahir Binici & Hasan Erol & A. Hakan Kara & Pinar Ozlu & Deren Unalmis, 2013. "Interest Rate Corridor : A New Macroprudential Tool?," CBT Research Notes in Economics 1320, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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    4. Ahmet Faruk Aysan & Salih Fendoğlu & Mustafa Kilinç, 2015. "Macroprudential Policies As Buffer Against Volatile Cross-Border Capital Flows," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-26.
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    Cited by:

    1. Madhusudan Mohanty & Kumar Rishabh, 2016. "Financial intermediation and monetary policy transmission in EMEs: What has changed post-2008 crisis?," BIS Working Papers 546, Bank for International Settlements.
    2. Miyajima, Ken & Mohanty, M.S. & Chan, Tracy, 2015. "Emerging market local currency bonds: Diversification and stability," Emerging Markets Review, Elsevier, vol. 22(C), pages 126-139.
    3. Kumar, Shekhar Hari & Patnaik, Ila, 2018. "Internationalisation of the Rupee," Working Papers 18/222, National Institute of Public Finance and Policy.
    4. Klara Halova & Roman Horvath, 2015. "International Spillovers of ECB’s Unconventional Monetary Policy: The Effect on Central and Eastern Europe," Working Papers 351, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    5. Gadanecz, Blaise & Miyajima, Ken & Shu, Chang, 2018. "Emerging market local currency sovereign bond yields: The role of exchange rate risk," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 371-401.
    6. Tashu, Melesse, 2018. "Determinantes del Tipo de Cambio Real de Equilibrio en Perú: ¿Es el sol una moneda commodity?," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 36, pages 9-30.
    7. Andrea Carolina Vargas-Páez & Carlos David Ardila-Dueñas, 2021. "Efecto del riesgo de tipo de cambio en la rentabilidad de los bonos soberanos en Colombia," Borradores de Economia 1165, Banco de la Republica de Colombia.
    8. Roman Horvath & Klara Voslarova, 2017. "International spillovers of ECB’s unconventional monetary policy: the effect on Central Europe," Applied Economics, Taylor & Francis Journals, vol. 49(24), pages 2352-2364, May.
    9. Zoë Venter, 2020. "The Interaction Between Conventional Monetary Policy and Financial Stability: Chile, Colombia, Japan, Portugal and the UK," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 521-554, September.
    10. Agur, Itai & Chan, Melissa & Goswami, Mangal & Sharma, Sunil, 2019. "On international integration of emerging sovereign bond markets," Emerging Markets Review, Elsevier, vol. 38(C), pages 347-363.
    11. Shesadri Banerjee & M S Mohanty, 2021. "US monetary policy and the financial channel of the exchange rate: evidence from India," BIS Working Papers 945, Bank for International Settlements.
    12. Carlos David Ardila-Dueñas & Hernán Rincón-Castro, 2019. "¿Cómo y qué tanto impacta la deuda pública a las tasas de interés de mercado?," Borradores de Economia 1077, Banco de la Republica de Colombia.
    13. Joseph E Gagnon & Philip Turner, 2019. "Monetary and Exchange Rate Policies for Sustained Growth in Asia," National Institute of Economic and Social Research (NIESR) Discussion Papers 497, National Institute of Economic and Social Research.
    14. Harahap, Berry & Bary, Pakasa & Panjaitan, Linda & Satyanugroho, Redianto, 2016. "Spillovers of United States and People’s Republic of China Shocks on Small Open Economies: The Case of Indonesia," ADBI Working Papers 616, Asian Development Bank Institute.
    15. Krokida, Styliani-Iris & Makrychoriti, Panagiota & Spyrou, Spyros, 2020. "Monetary policy and herd behavior: International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 386-417.
    16. 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).
    17. Stephanie E. Curcuru & Michiel De Pooter & George Eckerd, 2018. "Measuring Monetary Policy Spillovers between U.S. and German Bond Yields," International Finance Discussion Papers 1226, Board of Governors of the Federal Reserve System (U.S.).
    18. Ken Miyajima & Madhusudan Mohanty & James Yetman, 2014. "Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates," BIS Working Papers 478, Bank for International Settlements.

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