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

Author

Listed:
  • Vivek B. Arora
  • Martin D. Cerisola

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.

Suggested Citation

  • Vivek B. Arora & Martin D. Cerisola, 2000. "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?," IMF Working Papers 00/148, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/148
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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. Alessandra Amendola & Vincenzo Candila & Antonio Scognamillo, 2017. "On the influence of US monetary policy on crude oil price volatility," Empirical Economics, Springer, vol. 52(1), pages 155-178, February.
    3. Velloso, Helvia & Bustillo, Inés, 2002. "United States interest rates, Latin American debt and financial contagion," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    4. Alexander Zapata Galindo, 2003. "Los Servicios Financieros En El Índice De Precios Al Consumidor De Colombia," APUNTES DE BANCA Y FINANZAS 001896, ASOBANCARIA.
    5. 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.
    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. 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.
    8. 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.
    9. 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.
    10. 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.

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