The Effects of US Unconventional Monetary Policies in Latin America

38 Pages Posted: 22 Mar 2016

Date Written: March 22, 2016

Abstract

This paper offers an empirical analysis of the way in which US unconventional monetary policy has affected Latin American countries. First, we estimate the effects of US monetary policy announcements on sovereign bond interest rates, exchange rates and stock market indices for a set of emerging countries, including five Latin American economies. We find that QE announcements in 2008/2009 and the “tapering talk” in 2013 generated sizable sovereign yield and exchange rate fluctuations. We further find some excess response of Latam asset prices that disappear once we take into account their country characteristics. In the second part of the paper we estimate a simple model that measures the influence of country-specific macroeconomic fundamentals on the transmission of US financial disturbances. An estimated model including the inflation rate, the CDS spread, the ratio of official reserves and market capitalisation explains some of the observed cross-country heterogeneity of spillovers from US monetary policy announcements. Under this model, a greater impact from the normalisation of US monetary policy can be expected in Latin America relative to other emerging economies.

Keywords: unconventional monetary policy, spillovers, emerging economies, event study

JEL Classification: E52, F32, G11

Suggested Citation

Borrallo, Fructuoso and Hernando, Ignacio and Vallés, Javier, The Effects of US Unconventional Monetary Policies in Latin America (March 22, 2016). Banco de Espana Working Paper No. 1606. Available at SSRN: https://ssrn.com/abstract=2752888 or http://dx.doi.org/10.2139/ssrn.2752888

Fructuoso Borrallo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Ignacio Hernando

Banco de España ( email )

Madrid 28014
Spain
+34 91 338 5186 (Phone)
+34 91 338 5678 (Fax)

Javier Vallés

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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