Did interest rate guidance in emerging markets work?

Julián Caballero and Blaise Gadanecz

Journal of International Money and Finance, 2024, vol. 149, issue C

Abstract: Central banks in emerging market economies experimented with explicit interest rate guidance during 2020-2021. We explore the effectiveness of this policy. Despite some heterogeneity, interest rate guidance generally provided additional monetary stimulus, as reflected in lower medium-term yields and lower term spreads. The magnitude of the reduction in 10-year yields ranged between five and twenty basis points. In the immediate aftermath of the guidance, we do not observe a systematic negative market reaction – such as de-anchoring of inflation expectations, currency depreciation pressures, or increased sovereign credit risk – that would be associated with a loss of central bank credibility or with concerns about fiscal dominance.

Keywords: Monetary policy; Forward guidance; Central bank communication; Emerging markets (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:149:y:2024:i:c:s0261560624001992

DOI: 10.1016/j.jimonfin.2024.103212

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