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Monetary Independence in Emerging Markets

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Author Info

  • Thomas Philippon
  • Jeromin Zettelmeyer
  • Eduardo Borensztein

Abstract

This paper compares the impact of shocks to U.S. interest rates and emerging market bond spreads on domestic interest rates and exchange rates across several emerging market economies with different exchange rate regimes. Consistent with conventional priors, the results indicate that interest rates in Hong Kong react much more to U.S. interest rate shocks and shocks to international risk premia than interest rates in Singapore. The results are less clearcut in the comparison of Argentina and Mexico: While interest rates (and the exchange rate) in Mexico seem to react less to U.S. interest rate shocks, they react about the same to bond spread shocks, in addition to a significant impact on the exchange rate.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/1.

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Length: 49
Date of creation: 01 Jan 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/1

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Keywords: Interest rates; Risk premium; exchange rate; domestic interest rates; exchange rates; bond; exchange rate regime; exchange rate regimes; floating exchange rate; bonds; emerging market bond; international interest rates; market bond; floating exchange rate regimes; brady bond; floating exchange rates; bond spreads; deposit rate; exchange rate systems; bond yield; nominal exchange rate; financial markets; exchange rate flexibility; bond index; financial system; international financial architecture; money market; bond yields; brady bonds; floating exchange rate regime; bilateral exchange rate; bilateral exchange rates; international capital; domestic financial markets; deposit rates; emerging market bonds; futures contract; money market rate; bond spread; currency regime; denominated bond; sovereign bond; flexible exchange rate; interest rate policy; currency areas; international capital movements; policy on exchange rates; currency crisis; exchange rate system; exchange rate expectations; fixed exchange rate; international financial markets; exchange rate volatility; bond price; futures markets; futures contracts; government bonds; futures market; international financial system; currency depreciation; international bonds; fixed exchange rate regime; financial assets; exchange rate data; exchange rate fluctuations; basket of currencies; international capital markets; exchange rate changes; global ? bond; international finance; exchange rate policy; currency crises; exchange rate appreciations; reserve requirements; foreign exchange; exchange rate stability; flexible exchange rate regime; real exchange rate; bond prices; domestic government bonds;

References

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  1. Olivier Jeanne & Andrew K. Rose, 1999. "Noise Trading and Exchange Rate Regimes," NBER Working Papers 7104, National Bureau of Economic Research, Inc.
  2. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  3. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  4. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
  5. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers 838, C.E.P.R. Discussion Papers.
  6. Frankel, Jeffrey & Schmukler, Sergio & Serven, Luis, 2000. "Global transmission of interest rates : monetary independence and the currency regime," Policy Research Working Paper Series 2424, The World Bank.
  7. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  8. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications 4128, Inter-American Development Bank.
  9. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "Currency Crises and Monetary Policy in an Economy with Credit Constraints," CEPR Discussion Papers 2529, C.E.P.R. Discussion Papers.
  10. 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.
  11. Reinhart, Carmen & Calvo, Guillermo, 1999. "Capital Flow Reversals,the Exchange Rate Debate,and Dollarization," MPRA Paper 8951, University Library of Munich, Germany.
  12. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
  13. repec:fth:inadeb:418 is not listed on IDEAS
  14. Eduardo Borensztein & Andrew Berg, 2000. "The Pros and Cons of Full Dollarization," IMF Working Papers 00/50, International Monetary Fund.
  15. Joel T. Krueger & Kenneth N. Kuttner, 1995. "The Fed funds futures rate as a predictor of Federal Reserve policy," Working Paper Series, Macroeconomic Issues 95-4, Federal Reserve Bank of Chicago.
  16. Vittorio Grilli & Nouriel Roubini, 1995. "Liquidity and Exchange Rates: Puzzling Evidence from the G-7 Countries," Working Papers 95-17, New York University, Leonard N. Stern School of Business, Department of Economics.
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