Monetary Policy Spillovers in Emerging Economies

Forthcoming in: International Journal of Finance and Economics

47 Pages Posted: 21 Oct 2019

See all articles by Nahiyan Faisal Azad

Nahiyan Faisal Azad

University of Calgary, Students

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: September 13, 2019

Abstract

This paper explores for spillovers from monetary policy in the United States to a number of emerging market economies. We estimate the Elder and Serletis (2010) bivariate structural GARCH-in-Mean VAR in the U.S. monetary policy rate and the policy rate of each of six emerging economies that target the inflation rate --- Brazil, Chile, Mexico, Romania, Serbia, and South Africa. We also estimate the same model in the U.S. monetary policy rate and the exchange rate (against the U.S. dollar) of each of six emerging economies that target the exchange rate --- Bosnia and Herzegovina, Bulgaria, Comoros, Croatia, the Former Yugoslav Republic of Macedonia, and Montenegro. Our evidence suggests that positive (negative) U.S. monetary policy shocks tend to appreciate (depreciate) the currencies of the exchange rate targeting emerging economies, but have an ambiguous effect on the policy rates of the in‡flation-targeting emerging economies. Moreover, monetary policy uncertainty in the United States leads to an increase in policy rates in those emerging economies that target the in‡flation rate and to a depreciation of the currencies of those emerging economies that target the exchange rate.

Keywords: In‡flation rate targeting; Exchange rate targeting; Bivariate GARCH-in-Mean VAR.

JEL Classification: E4; E52; E58

Suggested Citation

Azad, Nahiyan Faisal and Serletis, Apostolos, Monetary Policy Spillovers in Emerging Economies (September 13, 2019). Forthcoming in: International Journal of Finance and Economics. Available at SSRN: https://ssrn.com/abstract=3467290

Nahiyan Faisal Azad

University of Calgary, Students ( email )

Canada

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

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