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Divergent EME Responses to Global and Domestic Monetary Policy Shocks

Author

Listed:
  • Woon Gyu Choi

    () (IMF Institute)

  • Byongju Lee

    () (Economic Research Institute, The Bank of Korea)

  • Taesu Kang

    () (Research Department, The Bank of Korea)

  • Geun-Young Kim

    () (Research Department, The Bank of Korea)

Abstract

We assess the effect of tighter monetary policy in the U.S. and emerging market economies (EMEs) on EMEs using a panel factor-augmented VAR model. We find that a U.S. policy rate hike outstrips an equivalent domestic rate hike in its impacts on EMEs. In addition, EMEs show divergent policy responses and their macro-financial responses differ depending upon their economic fundamentals in the face of tighter U.S. policy. In particular, we find that high-inflation than low-inflation EMEs are more susceptible to the shock stemming from a U.S. federal funds rate hike.

Suggested Citation

  • Woon Gyu Choi & Byongju Lee & Taesu Kang & Geun-Young Kim, 2016. "Divergent EME Responses to Global and Domestic Monetary Policy Shocks," Working Papers 2016-15, Economic Research Institute, Bank of Korea.
  • Handle: RePEc:bok:wpaper:1615
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Global liquidity; Monetary transmission; Divergent responses; Panel factor-augmented VAR;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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