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The Effects of USA Monetary Policy on Central America and the Dominican Republic

In: International Spillovers of Monetary Policy

Author

Listed:
  • Ariadne M. Checo

    () (Banco Central de la República Dominicana)

  • Salomé Pradel

    () (Banco Central de la República Dominicana)

  • Francisco A. Ramírez

    () (Banco Central de la República Dominicana)

Abstract

This paper estimates the impact of US monetary policy shocks on Central America and the Dominican Republic economies, using a factor augmented VAR model. A sign restriction approach is implemented for the identification of such shocks. Our results indicate that us monetary policy shocks affect these economies mostly through its effects on the real side of the economy due to its impact on external demand and the reduced role of the exchange rate as a shock absorber, where countries with less flexible exchange rate regimes are more affected. Likewise, the flow of remittances is also negatively influenced, revealing another channel through which foreign monetary shocks impact the Central American and the Dominican Republic economies. On the financial side, domestic interest rates will rise and net international reserves will fall as central banks limit volatility in exchange rates.

Suggested Citation

  • Ariadne M. Checo & Salomé Pradel & Francisco A. Ramírez, 2017. "The Effects of USA Monetary Policy on Central America and the Dominican Republic," Investigación Conjunta-Joint Research, in: Ángel Estrada García & Alberto Ortiz Bolaños (ed.),International Spillovers of Monetary Policy, edition 1, chapter 7, pages 189-222, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  • Handle: RePEc:cml:incocp:3-07
    Note: Joint Research Program XX Meeting of the Central Bank Researchers Network
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    transmission of monetary policy; normalization; interest rates; Central America;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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