 Are higher U.S. interest rates always bad news for emerging markets?Jasper Hoek, Steve Kamin and Emre Yoldas Journal of International Economics, 2022, vol. 137, issue C Abstract: Increases in U.S. interest rates are often thought to generate adverse spillovers to emerging market economies (EMEs). We show that whether U.S. rate hikes are bad news for EMEs depends on the source of these hikes. Higher rates stemming from stronger U.S. growth generate only modest spillovers to EME financial markets, while those stemming from hawkish Fed policy or inflationary pressures are much more disruptive. We identify the sources of U.S. rate changes using moves in financial asset prices around FOMC announcements and U.S. employment reports. Drawing on the literature identifying Fed “information” effects, we interpret positive comovements of Treasury yields and U.S. equity prices around these events as growth shocks and negative comovements as monetary shocks, and estimate the effect of these shocks on emerging market asset prices. For EMEs with greater macroeconomic and financial vulnerabilities, the difference between the impact of monetary and growth shocks is magnified. Keywords: Monetary policy; Spillovers; Emerging markets; Growth shock; Monetary Shock; Financial conditions (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:eee:inecon:v:137:y:2022:i:c:s0022199622000174 DOI: 10.1016/j.jinteco.2022.103585 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
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