The Spillover Effects of U.S. Monetary Policy on Emerging Market Economies: Breaks, Asymmetries and Fundamentals

36 Pages Posted: 11 Jan 2016

See all articles by Geun-Young Kim

Geun-Young Kim

Research Dept., Bank of Korea

Hail Park

Kyung-Hee University

Peter Tillmann

University of Giessen

Date Written: January 8, 2016

Abstract

The recent implementation of unconventional monetary policies in advanced economies and the preparations for an eventual return to normalization have renewed the interest in spillover effects of monetary policy on emerging market economies. This paper estimates a series of VAR-X models for a set of 10 emerging economies, that is, VARs in which U.S. policy enters exogenously. The contribution of this paper is (1) to use an identified shock component of the U.S. (shadow) Federal Funds rate as a consistent policy instrument for conventional and unconventional policies, (2) to account for changes in the transmission of U.S. monetary policy over time, (3) to quantify asymmetries in the transmission of tightening and easing shocks, and (4) to relate the exposure of emerging countries with macroeconomic fundamentals. The results point to substantially nonlinear and asymmetric spillover effects, which pose challenges to policymakers.

Keywords: Conventional-Unconventional monetary policy, Spillovers, Emerging markets, VAR-X model, Asymmetries

JEL Classification: E58, F32, F42

Suggested Citation

Kim, Geun-Young and Park, Hail and Tillmann, Peter, The Spillover Effects of U.S. Monetary Policy on Emerging Market Economies: Breaks, Asymmetries and Fundamentals (January 8, 2016). Bank of Korea WP 2016-1, Available at SSRN: https://ssrn.com/abstract=2711579 or http://dx.doi.org/10.2139/ssrn.2711579

Geun-Young Kim (Contact Author)

Research Dept., Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Hail Park

Kyung-Hee University ( email )

Peter Tillmann

University of Giessen ( email )

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