Should Emerging Markets Worry About U.S. Monetary Policy Announcements?

39 Pages Posted: 13 Jun 2017

Date Written: June 9, 2017

Abstract

This paper analyzes the spillover effects of U.S. monetary policy announcements on emerging market economies since end-2008, the period coinciding with the use of unconventional policy measures. Monetary policy surprises are measured by changes in two-year Treasury yields in short windows of time around the Federal Reserve Board's policy announcements. The analysis finds that U.S. monetary policy surprises have a significant impact on emerging economies' exchange rates, equity prices, and bond yields. The impact is larger for surprise tightening of policy than for surprise easing. The impact is disproportionately larger for large surprises, implying that emerging markets are relatively insulated from anticipated policy announcements. The spillover effects of policy announcements of other advanced economies, such as the euro area, Japan, and United Kingdom, are found to be much weaker than those of the United States.

Keywords: Finance and Development, Financial Economics

Suggested Citation

Gupta, Poonam and Masetti, Oliver and Rosenblatt, David, Should Emerging Markets Worry About U.S. Monetary Policy Announcements? (June 9, 2017). World Bank Policy Research Working Paper No. 8100, Available at SSRN: https://ssrn.com/abstract=2985527

Poonam Gupta (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
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Oliver Masetti

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

David Rosenblatt

World Bank ( email )

1818 H Street, N.W.
MSN MC4-404
Washington, DC 20433
United States

HOME PAGE: http://www.worldbank.org/en/about/people/david-rosenblatt

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