Monetary policy and financial spillovers: losing traction?

Piti Disyatat and Phurichai Rungcharoenkitkul

No 518, BIS Working Papers from Bank for International Settlements

Abstract: Has financial globalisation compromised central banks' ability to manage domestic financial conditions? This paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies. To gauge the extent to which external financial conditions complicate the conduct of monetary policy, we isolate a "contagion" component by focusing on comovements in measures of bond return risk premia that are unrelated to economic fundamentals. Our contagion measure is designed to more accurately capture spillovers driven by exogenous global shifts in risk preference or appetite. The analysis reaches several conclusions that run counter to popular presumptions based on comovements in bond yields. In particular, emerging market economies appear to be much less susceptible to global contagion than advanced economies, and the overall sensitivities to contagion have not increased post-crisis.

Keywords: Monetary policy; financial spillovers; contagion; interest rates; trilemma; bond risk premium; capital flows (search for similar items in EconPapers)
Pages: 44 pages
Date: 2015-10
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Monetary policy and financial spillovers: Losing traction? (2017)
Working Paper: Monetary Policy and Financial Spillovers: Losing Traction? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:518

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