 What shapes spillovers from US monetary policy shocks to emerging market economies?Erik Andres Escayola, Peter McQuade, Christofer Schroeder and Marcel Tirpák Economic Bulletin Boxes, 2023, vol. 2 Abstract: This box studies the impact that the Federal Reserve’s tightening of monetary policy has on emerging market economies (EMEs) and analyses the factors shaping those spillovers. We use a local projections empirical framework to examine the ways in which EMEs’ macroeconomic and macro-financial variables respond to US monetary policy shocks identified at high frequency. In line with academic literature, our baseline results show that a surprise tightening of US monetary policy is associated with immediate tightening of EMEs’ financial conditions, after which industrial production and inflation decline, with that effect peaking after around 18 months. We find that heterogeneity across EMEs is shaped by macro-financial vulnerabilities and monetary policy actions at the national level: domestic macro-financial vulnerabilities clearly matter, amplifying EMEs’ sensitivity to US monetary policy shocks, while maintaining a prudent monetary policy stance helps EMEs to mitigate spillovers from US monetary policy. JEL Classification: C32, E52, E58 Keywords: emerging markets; Monetary policy spillovers; US monetary policy shocks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbbox:2023:0002:1 Access Statistics for this article More articles in Economic Bulletin Boxes from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC. |
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