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The emerging market reaction to Fed tightening


  • Beniak, Patrycja


This paper provides one of the first comprehensive assessments of spillovers from 2015-2018 monetary policy tightening phase in the United States to emerging markets, as well as their determinants. It shows that the spillovers were concentrated in the fixed income markets, with a relatively small impact of Fed policy on foreign exchange and stock market price behaviour. The bulk of the impact on fixed income was channeled through rising interest rate expectations rather than an increase in term premia. The decisions on monetary policy tightening in the United States are found to be of less importance for EM pricing than the preceding speeches. The markets were differentiating across individual countries, yet, with exception of the Central and Eastern European economies, based not on macroeconomic fundamentals but the economic policies shaping them. On the top of that, the paper investigates the importance of economic and political risk perception as well as ECB policy for the magnitude of EM spillovers from the Fed tightening, finding both factors irrelevant.

Suggested Citation

  • Beniak, Patrycja, 2019. "The emerging market reaction to Fed tightening," MPRA Paper 96545, University Library of Munich, Germany, revised 29 Oct 2019.
  • Handle: RePEc:pra:mprapa:96545

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    References listed on IDEAS

    1. Juliusz Jabłecki & Andrzej Raczko & Grzegorz Wesołowski, 2016. "Negative bond term premia - a new challenge for Polish conventional monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 303-315, Bank for International Settlements.
    2. Chen, Qianying & Filardo, Andrew & He, Dong & Zhu, Feng, 2016. "Financial crisis, US unconventional monetary policy and international spillovers," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 62-81.
    3. Qianying Chen & Marco Lombardi & Alex Ross & Feng Zhu, 2017. "Global impact of US and euro area unconventional monetary policies: a comparison," BIS Working Papers 610, Bank for International Settlements.
    4. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
    5. Elías Albagli & Luis Ceballos & Sebastián Claro & Damián Romero, 2015. "Channels of US Monetary Policy Spillovers into International Bond Markets," Working Papers Central Bank of Chile 771, Central Bank of Chile.
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    More about this item


    unconventional monetary policy; central bank communication; international capital flows; emerging markets; open source software in support of policy analysis;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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