Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?

50 Pages Posted: 8 Jun 2001

See all articles by Eduardo Borensztein

Eduardo Borensztein

Inter-American Development Bank (IADB)

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics; CEPR

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: January 2001

Abstract

This paper compares the impact of shocks to U.S. interest rates and emerging market bond spreads on domestic interest rates and exchange rates across several emerging market economies with different exchange rate regimes. Consistent with conventional priors, the results indicate that interest rates in Hong Kong react much more to U.S. interest rate shocks and shocks to international risk premia than interest rates in Singapore. The results are less clearcut in the comparison of Argentina and Mexico: while interest rates (and the exchange rate) in Mexico seem to react less to U.S. interest rate shocks, they react about the same to bond spread shocks, in addition to a significant impact on the exchange rate.

Keywords: Monetary policy, exchange rate regime, interest rates, risk premium

JEL Classification: E50, F31

Suggested Citation

Borensztein, Eduardo and Zettelmeyer, Jeromin and Philippon, Thomas, Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference? (January 2001). IMF Working Paper No. 01/1. Available at SSRN: https://ssrn.com/abstract=272255

Eduardo Borensztein

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Jeromin Zettelmeyer (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

CEPR ( email )

London
United Kingdom

Thomas Philippon

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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