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How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?

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  • Vivek B. Arora
  • Martin D. Cerisola
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    Abstract

    This paper quantifies the economic impact of changes in U.S. monetary policy on emerging market countries. We explore empirically how country risk, as proxied by sovereign bond spreads, is influenced by U.S. monetary policy, country-specific fundamentals, and conditions in global capital markets. In addition, we simulate the direct effects of a tightening in U.S. monetary policy on economic conditions in developing countries. While country-specific fundamentals are important in explaining fluctuations in country risk, the stance and predictability of U.S. monetary policy are also important for stabilizing capital flows and capital market conditions and fostering economic growth in developing countries.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/148.

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    Length: 28
    Date of creation: 01 Aug 2000
    Date of revision:
    Handle: RePEc:imf:imfwpa:00/148

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    Related research

    Keywords: Emerging markets; Bonds; sovereign bond; bond; debt service; external debt; currency crises; global liquidity; bond spreads; debtor countries; bond issues; government debt; total external debt; sovereign bonds; international reserves; international capital; stock market; stock market volatility; international capital markets; debt service to exports; net debt; current account; reserve bank; bond market; current account balance; denominated bonds; domestic interest rates; derivative; emerging market bonds; financial markets; samurai bonds; budget balance; external debt service; stock returns; sovereign debt; ratios of debt service to exports; bond issue; hedge; currency regime; denominated bond; market debt; sovereign bond markets; international bank lending; hedging; currency board; international bond market; financial sector; financial resources; stock prices; international bond; balance of payments; financial volatility; bond markets; eurobond; net debtor; hedge funds; international finance;

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    Cited by:
    1. Alicia Garcia Herrero & Alvaro Ortiz, 2004. "The Role Of Global Risk Aversion In Explaining Latin American Sovereign Spreads," International Finance 0408001, EconWPA.
    2. Martín Grandes, 2007. "The Determinants of Sovereign Bond Spreads: Theory and Facts From Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(130), pages 151-181.
    3. 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.
    4. Santiago Gutiérrez V. & Michel Formisano P., 2003. "La culpa es del Yankee: Correlaciones e ineficiencias en el mercado de dinero," APUNTES DE BANCA Y FINANZAS 002959, ASOBANCARIA.
    5. Sébastien Wälti, 2003. "Contagion and interdependence among Central European economies: the impact of common external shocks," IHEID Working Papers 02-2003, Economics Section, The Graduate Institute of International Studies.
    6. Martin Grandes & Helmut Reisen, 2003. "Hard Peg versus Soft Float. A Tale of Two Latin-American Countries," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 1057-1090.
    7. Cifarelli, Giulio & Paladino, Giovanna, 2006. "Volatility co-movements between emerging sovereign bonds: Is there segmentation between geographical areas?," Global Finance Journal, Elsevier, vol. 16(3), pages 245-263, March.
    8. Alexander Zapata Galindo, 2003. "Los Servicios Financieros En El Índice De Precios Al Consumidor De Colombia," APUNTES DE BANCA Y FINANZAS 001896, ASOBANCARIA.

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