Financial Spillovers of International Monetary Policy: Six Hypotheses on the Latin American Case, 2010-2016

38 Pages Posted: 5 Feb 2018

See all articles by Sylvester C. W. Eijffinger

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Jonathan Malagon

National University of Colombia

Date Written: February 2018

Abstract

This paper aims to determine if there is a differential incidence between conventional and unconventional monetary policy of developed economies in Latin American financial markets, evaluating six hypotheses that can be extracted from the economic literature. Financial spillovers are considered on two dimensions: financial asset prices (fixed income and equity markets) and interest rates (monetary policy rate and loans rates).

The main finding is that both conventional and unconventional monetary policies in US and Eurozone have a significant and direct incidence on Latin American fixed income markets, although the effect of unconventional monetary policy is low. In contrast, only unconventional monetary policy has a significant effect on Latin American equity markets. On the other hand, regardless of the exchange rate pass-through of Latin American economies, the conventional monetary policy of the United States and Eurozone has a low but significant incidence on both monetary policy rates and lending interest rates in Latin America, while the unconventional monetary policies have no incidence. As anticipated, US conventional and unconventional monetary policy have a higher incidence on Latin American financial markets with respect to the monetary policy decisions in Eurozone and Japan. Finally, free trade agreements between developed economies and Latin American economies do not have a significant impact on the relationship between international monetary policy and Latin American financial markets.

Keywords: central banking, financial asset prices, financial globalization, Financial spillovers, Latin America, monetary policy

JEL Classification: E40, E43, E50, E52, E58

Suggested Citation

Eijffinger, Sylvester C. W. and Malagon, Jonathan, Financial Spillovers of International Monetary Policy: Six Hypotheses on the Latin American Case, 2010-2016 (February 2018). CEPR Discussion Paper No. DP12678. Available at SSRN: https://ssrn.com/abstract=3118326

Sylvester C. W. Eijffinger (Contact Author)

Tilburg University (CentER) - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2411 (Phone)
+31 13 466 3042 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jonathan Malagon

National University of Colombia ( email )

Carrera 30 45-03
Bogota, None
Colombia

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