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External Shocks, U.S. Monetary Policy and Macroeconomic Fluctuations in Emerging Markets

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  • Bartosz Mackowiak

Abstract

Using structural VARs, I find that external shocks are an important source of macroeconomic fluctuations in emerging markets. Furthermore, U.S. monetary policy shocks affect quickly and strongly interest rates and the exchange rate in a typical emerging market. The price level and real output in a typical emerging market respond to U.S. monetary policy shocks by more than the price level and real output in the U.S. itself. These findings are consistent with the idea that “when the U.S. sneezes, emerging markets catch a cold.” At the same time, U.S. monetary policy shocks are not important for emerging markets relative to other kinds of external shocks.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-026.

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Length: 16 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-026

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Keywords: Structural vector autoregression; monetary policy shocks; international spillover effects of monetary policy; external shocks; emerging markets;

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References

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