How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?

Author: Mr. Vivek Arora and Mr. Martin D. Cerisola

Volume/Issue: Volume 2000 Issue 148

Publication date: August 2000

ISBN: 9781451856811

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Exports and Imports , Finance , Investments and Securities-General , Public Finance , WP , monetary policy , interest rate , country risk , market turbulence , U , S , monetary policy , emerging markets , sovereign bond spreads , herding , contagion , Multimod , interest rate increase , bond issue , flight to quality , market volatility , Treasury bill yield , interest rate volatility , interest-rate spread , emerging market bond , sovereign spread , Treasury yield , Emerging and frontier financial markets , Debt service ratios , Sovereign bonds , Treasury bills and bonds , Global

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Summary

This paper quantifies the economic impact of changes in U.S. monetary policy on emerging market countries. We explore empirically how country risk, as proxied by sovereign bond spreads, is influenced by U.S. monetary policy, country-specific fundamentals, and conditions in global capital markets. In addition, we simulate the direct effects of a tightening in U.S. monetary policy on economic conditions in developing countries. While country-specific fundamentals are important in explaining fluctuations in country risk, the stance and predictability of U.S. monetary policy are also important for stabilizing capital flows and capital market conditions and fostering economic growth in developing countries.