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Monetary Policy and Financial Spillovers: Losing Traction?

Author

Listed:
  • Piti Disyatat

    (Bank of Thailand)

  • Phurichai Rungcharoenkitkul

    (Bank of International Settlements)

Abstract

Has financial globalisation compromised central banks? ability to manage domestic financial conditions? This paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies. To gauge the extent to which external financial conditions complicate the conduct of monetary policy, we isolate a ?contagion? component by focusing on comovements in measures of bond return risk premia that are unrelated to economic fundamentals. Our contagion measure is designed to more accurately capture spillovers driven by exogenous global shifts in risk preference or appetite. The analysis reaches several conclusions that run counter to popular presumptions based on comovements in bond yields. In particular, emerging market economies appear to be much less susceptible to global contagion than advanced economies, and the overall sensitivities to contagion have not increased post-crisis.

Suggested Citation

  • Piti Disyatat & Phurichai Rungcharoenkitkul, 2015. "Monetary Policy and Financial Spillovers: Losing Traction?," PIER Discussion Papers 9., Puey Ungphakorn Institute for Economic Research, revised Nov 2015.
  • Handle: RePEc:pui:dpaper:9.
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    References listed on IDEAS

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    Cited by:

    1. repec:pal:imfecr:v:65:y:2017:i:1:d:10.1057_s41308-016-0026-9 is not listed on IDEAS
    2. Piti Disyatat & Phurichai Rungcharoenkitkul, 2016. "Financial globalisation and monetary independence," BIS Papers chapters,in: Bank for International Settlements (ed.), Expanding the boundaries of monetary policy in Asia and the Pacific, volume 88, pages 213-225 Bank for International Settlements.
    3. Dietrich Domanski & Hyun Song Shin & Vladyslav Sushko, 2017. "The Hunt for Duration: Not Waving but Drowning?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(1), pages 113-153, April.
    4. Disyatat, Piti & Rungcharoenkitkul, Phurichai, 2017. "Monetary policy and financial spillovers: Losing traction?," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 115-136.
    5. repec:bis:bisbps:97 is not listed on IDEAS

    More about this item

    Keywords

    Monetary policy; financial spillovers; contagion; interest rates; trilemma; bond risk premium; capital fl ows;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • 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
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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