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Monetary News, U.S. Interest Rate and Business Cycles in Emerging Economies

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  • Vicondoa, Alejandro

Abstract

This paper identifies anticipated (news) and unanticipated (surprise) shocks to the U.S. Fed Funds rate using CBOT Fed Funds Future Market and assesses their propagation to emerging economies. Anticipated movements account for 80% of quarterly Fed Funds fluctuations and explain a significant fraction of the narrative monetary policy shocks. An expected 1% increase in the reference interest rate induces a fall of 2% in GDP of emerging economies two quarters before the shock materializes. Unanticipated contractionary shocks also cause a recession. Both shocks have a larger impact in emerging relative to developed economies and the financial channel is the most relevant for their transmission. Anticipation is also relevant to understand the transmission of U.S. real interest rate shocks.

Suggested Citation

  • Vicondoa, Alejandro, 2016. "Monetary News, U.S. Interest Rate and Business Cycles in Emerging Economies," Economics Working Papers ECO2016/10, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2016/10
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    Cited by:

    1. Nadav Ben-Zeev & Evi Pappa & Alejandro Vicondoa, 2016. "Emerging Economies Business Cycles: The Role Of The Terms Of Trade Revisited," Working Papers 1610, Ben-Gurion University of the Negev, Department of Economics.
    2. Pierre De Leo & Vito Cormun, 2017. "Revisiting the Exchange Rate Response to Monetary Policy Innovations: The Role of Spillovers of U.S. News Shocks," 2017 Meeting Papers 576, Society for Economic Dynamics.

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    More about this item

    Keywords

    International business cycle; Interest rate; News shocks; Small open economy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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