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Bond markets and monetary policy dilemmas for the emerging markets

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  • Jhuvesh Sobrun
  • Philip Turner

Abstract

Financial conditions in the emerging markets (EMs) have become more dependent on the 'world' long-term interest rate, which has been driven down by monetary policies in the advanced economies - notably Quantitative Easing (QE) - and by several non-monetary factors. This paper analyses some new mechanisms that link global long-term rates to monetary policy and to domestic bank lending in the EMs. Understanding these mechanisms could help EM central banks prepare for the exit from QE and higher (and perhaps divergent) policy rates in advanced economies. Although monetary policy in the EMs has continued to be guided by domestic objectives, it has nevertheless lost some traction. Difficult trade-offs now confront central banks.

Suggested Citation

  • Jhuvesh Sobrun & Philip Turner, 2015. "Bond markets and monetary policy dilemmas for the emerging markets," BIS Working Papers 508, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:508
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    References listed on IDEAS

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    Cited by:

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    2. 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.
    3. Juan J. Cortina & Tatiana Didier & Sergio L. Schmukler, 2018. "Corporate debt maturity in developing countries: Sources of long and short‐termism," The World Economy, Wiley Blackwell, vol. 41(12), pages 3288-3316, December.
    4. Bernoth, Kerstin & Herwartz, Helmut, 2021. "Exchange rates, foreign currency exposure and sovereign risk," Journal of International Money and Finance, Elsevier, vol. 117(C).
    5. Boris Hofmann & Elod Takáts, 2015. "International monetary spillovers," BIS Quarterly Review, Bank for International Settlements, September.
    6. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2016. "Sovereign yields and the risk-taking channel of currency appreciation," BIS Working Papers 538, Bank for International Settlements.
    7. Gylfi Zoega, 2020. "Monetary Hegemony and its Implications for Small, Open Economies," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(4), pages 431-446, December.
    8. Jimmy Shek & Ilhyock Shim & Hyun Song Shin, 2018. "Investor Redemptions and Fund Manager Sales of Emerging Market Bonds: How Are They Related? [Borrow cheap, buy high? The determinants of leverage and pricing in buyouts]," Review of Finance, European Finance Association, vol. 22(1), pages 207-241.
    9. 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.
    10. Hossfeld, Oliver & Pramor, Marcus, 2018. "Global liquidity and exchange market pressure in emerging market economies," Discussion Papers 05/2018, Deutsche Bundesbank.
    11. Giraldo, Iader & Turner, Philip, 2022. "The Dollar Debt of Companies in Latin America: the warning signs," National Institute of Economic and Social Research (NIESR) Discussion Papers 534, National Institute of Economic and Social Research.
    12. Kim, Soyoung & Shin, Hyun Song, 2021. "Offshore EME bond issuance and the transmission channels of global liquidity," Journal of International Money and Finance, Elsevier, vol. 112(C).
    13. Michael Chui & Emese Kuruc & Philip Turner, 2016. "A new dimension to currency mismatches in the emerging markets - non-financial companies," BIS Working Papers 550, Bank for International Settlements.
    14. Veronica B Bayangos & Jeremy De Jesus, 2020. "Have domestic prudential policies been effective? Insights from bank-level property loan data," BIS Papers chapters, in: Bank for International Settlements (ed.), Measuring the effectiveness of macroprudential policies using supervisory bank-level data, volume 110, pages 63-79, Bank for International Settlements.
    15. Peter Hördahl & Jhuvesh Sobrun & Philip Turner, 2016. "Low long-term interest rates as a global phenomenon," BIS Working Papers 574, Bank for International Settlements.
    16. Malliaropulos, Dimitris & Migiakis, Petros, 2018. "The re-pricing of sovereign risks following the Global Financial Crisis," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 39-56.
    17. José María Serena & Ramon Moreno, 2016. "Domestic financial markets and offshore bond financing," BIS Quarterly Review, Bank for International Settlements, September.
    18. Yusuf Soner Baskaya & Julian di Giovanni & Sebnem Kalemli-Ozcan & Jose-Luis Peydro & Mehmet Fatih Ulu, 2016. "Capital flows, credit cycles and macroprudential policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 63-68, Bank for International Settlements.
    19. Frank Packer & Chang Shu, 2015. "Introduction," BIS Papers chapters, in: Bank for International Settlements (ed.), Cross-border financial linkages: challenges for monetary policy and financial stability, volume 82, pages v-ix, Bank for International Settlements.
    20. Dong, Yan & Wang, Cong, 2021. "The effect of stimulus policy on lending behavior and bank risk: Evidence from the Chinese banking sector," Emerging Markets Review, Elsevier, vol. 49(C).
    21. Hans Genberg, 2017. "Financial Integration in Asia," Working Papers wp22, South East Asian Central Banks (SEACEN) Research and Training Centre.
    22. Már Gudmundsson, 2017. "Global Financial Integration And Central Bank Policies In Small, Open Economies," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(01), pages 135-146, March.
    23. Madhusudan Mohanty, 2015. "What do new forms of finance mean for EM central banks? - An Overview," BIS Papers chapters, in: Bank for International Settlements (ed.), What do new forms of finance mean for EM central banks?, volume 83, pages 1-8, Bank for International Settlements.
    24. Moumita Paul & Kalluru Siva Reddy, 2022. "US QE and the Indian Bond Market," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(1), pages 137-157, March.
    25. Simona Malovaná & Josef Bajzík & Dominika Ehrenbergerová & Jan Janků, 2023. "A prolonged period of low interest rates in Europe: Unintended consequences," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 526-572, April.

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    Keywords

    Exit from QE; long-term interest rate; emerging market economies; bond markets;
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