IDEAS home Printed from https://ideas.repec.org/h/cml/incocp/3-02.html
   My bibliography  Save this book chapter

The Transmission of US Monetary Policy Normalization to Emerging Markets

In: International Spillovers of Monetary Policy

Author

Listed:
  • Kólver Hernández

    (Banco de México)

Abstract

In this chapter, I analyze the potential macroeconomic effects of the normalization of US monetary policy for emerging market economies (EMEs), in particular for Mexico. I build on the work of Hernandez and Leblebicioglu (2016) by adding monetary elements to their two-country DSGE model that endogenizes multiple transmission channels for the transmission of international shocks. Among those channels are the exchange rate, international bank lending, international trade and monetary policy rates. Based on a Bayesian estimation of the deep parameters of the model, I simulate scenarios that yield an equilibrium in which us monetary policy rate would increase in the last two quarters of 2015. The underlying conditions that promote the normalization of monetary policy in USA imply favorable growth of around 2.4% in GDP and an average increase of 25 basis points in us policy rate. For Mexico, those conditions carry positive international spillovers that result in an average GDP growth of 2.8%. The increa e in us rate calls for a response in Mexico’s policy rate in more than one to one, i.e., it calls for an aggressive response. Mexico’s policy rate hike contains the depreciation of the exchange rate and stabilizes inflation.

Suggested Citation

  • Kólver Hernández, 2017. "The Transmission of US Monetary Policy Normalization to Emerging Markets," Investigación Conjunta-Joint Research,in: Ángel Estrada García & Alberto Ortiz Bolaños (ed.), International Spillovers of Monetary Policy, edition 1, chapter 2, pages 15-30 Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  • Handle: RePEc:cml:incocp:3-02
    Note: Joint Research Program XX Meeting of the Central Bank Researchers Network
    as

    Download full text from publisher

    File URL: http://www.cemla.org/PDF/ic/2017-05-jrp-ISMP-02.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
    2. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
    3. Justiniano, Alejandro & Preston, Bruce, 2010. "Can structural small open-economy models account for the influence of foreign disturbances?," Journal of International Economics, Elsevier, vol. 81(1), pages 61-74, May.
    4. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    emerging market business cycles; transmission of foreign shocks; estimated two-country model; international transmission of monetary policy;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cml:incocp:3-02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ana Laura Sibaja-Jiménez). General contact details of provider: http://edirc.repec.org/data/cemlamx.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.