Monetary Policy Transmission in Emerging Markets and Developing Economies

56 Pages Posted: 31 Mar 2021

See all articles by Luis Brandao-Marques

Luis Brandao-Marques

International Monetary Fund - Monetary and Capital Markets Department

Gaston Gelos

International Monetary Fund

Thomas Harjes

International Monetary Fund (IMF)

Ratna Sahay

International Monetary Fund (IMF) - Developing Country Studies Division; National Bureau of Economic Research (NBER)

Yi Xue

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2021

Abstract

The effectiveness of monetary policy transmission in emerging markets and developing countries (EMDEs) remains subject to considerable debate in academia and among policymakers. Can EMDEs effectively steer inflation and output by controlling short-term interest rates? Or do structural features of these economies, in particular a lack of financial market depth, hinder such transmission? We conduct a novel empirical analysis using Jordà’s (2005) approach for 39 EMDEs to answer these questions. We find that interest rate hikes do reduce output growth and inflation, if the exchange rate is allowed to adjust. Inflation targeting frameworks adopted by independent and transparent central banks matter more than structural features, such as financial development.

JEL Classification: E3, E4, E5, F4, G1

Suggested Citation

Brandao-Marques, Luis and Gelos, R. Gaston and Harjes, Thomas and Sahay, Ratna and Xue, Yi, Monetary Policy Transmission in Emerging Markets and Developing Economies (March 1, 2021). CEPR Discussion Paper No. DP15931, Available at SSRN: https://ssrn.com/abstract=3816802

Luis Brandao-Marques (Contact Author)

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
2026238308 (Phone)
2025898308 (Fax)

R. Gaston Gelos

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Thomas Harjes

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ratna Sahay

International Monetary Fund (IMF) - Developing Country Studies Division ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7181 (Phone)
202-623-7271 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yi Xue

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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