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

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Author Info
Bartosz Mackowiak

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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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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
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Handle: RePEc:hum:wpaper:sfb649dp2006-026

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

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Find related papers by JEL classification:
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August. [Downloadable!] (restricted)
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  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Baxter, M. & Stockman, A.C., 1988. "Business Cycles And The Exchange Rate System: Some International Evidence," RCER Working Papers 140, University of Rochester - Center for Economic Research (RCER).
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  8. Jacques Miniane & John H. Rogers, 2003. "Capital controls and the international transmission of U.S. money shocks," International Finance Discussion Papers 778, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March. [Downloadable!] (restricted)
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  10. Guillermo Calvo & Carmen Reinhart & Leonardo Leiderman, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
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    Other versions:
  12. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-2), pages 1-78. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2008. "Large Bayesian VARs," ECARES Working Papers 2008_033, Université Libre de Bruxelles, Ecares. [Downloadable!]
    Other versions:
  2. Jean-Pierre Allégret & Alain Sand-Zantman, 2008. "Does a Monetary Union protect again foreign shocks? An assessment of Latin American integration using a Bayesian VAR," Working Papers 0809, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  3. Roman Horváth & Marek Rusnák, 2008. "How Important Are Foreign Shocks in Small Open Economy? The Case of Slovakia," Working Papers IES 2008/21, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2008. [Downloadable!]
    Other versions:
  4. Fabio Canova, 2003. "The transmission of US shocks to Latin America," Economics Working Papers 925, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2004. [Downloadable!]
  5. Hakan Berument & Nildag Basak Ceylan & Bengisu Vural, 2006. "The effects of Japanese economic performance on Indonesia," Applied Economics Letters, Taylor and Francis Journals, vol. 13(8), pages 499-502, June. [Downloadable!] (restricted)
    Other versions:
  6. Fabio Canova & Matteo Ciccarelli & Eva Ortega, 2003. "Similarities and Convergence in G-7 Cycles," Economics Working Papers 924, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2004. [Downloadable!]
    Other versions:
  7. Jean-Pierre Allegret & Alain Sand-Zantman, 2009. "Does a Monetary Union protect again shocks? An assessment of Latin American integration," Post-Print halshs-00371069_v1, HAL. [Downloadable!]
  8. Masami Imai & Seitaro Takarabe, 2009. "Bank Integration and Local Credit Cycle:Evidence from Japan," Wesleyan Economics Working Papers 2009-002, Wesleyan University, Department of Economics. [Downloadable!]
  9. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Fatih Ozatay & Erdal Ozmen & Gülbin Sahinbeyoglu, 2007. "Emerging Market Sovereign Spreads, Global Financial Conditions and U.S. Macroeconomic News," ERC Working Papers 0707, ERC - Economic Research Center, Middle East Technical University, revised Dec 2007. [Downloadable!]
  11. Fabio Canova, 2005. "The transmission of US shocks to Latin America," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 229-251. [Downloadable!]
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