Divergent EME Responses to Global and Domestic Monetary Policy Shocks

Woon Gyu Choi, Byongju Lee (), Taesu Kang and Geun-Young Kim ()
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Byongju Lee: Economic Research Institute, The Bank of Korea
Geun-Young Kim: Research Department, The Bank of Korea

No 2016-15, Working Papers from Economic Research Institute, Bank of Korea

Abstract: We assess the effect of tighter monetary policy in the U.S. and emerging market economies (EMEs) on EMEs using a panel factor-augmented VAR model. We find that a U.S. policy rate hike outstrips an equivalent domestic rate hike in its impacts on EMEs. In addition, EMEs show divergent policy responses and their macro-financial responses differ depending upon their economic fundamentals in the face of tighter U.S. policy. In particular, we find that high-inflation than low-inflation EMEs are more susceptible to the shock stemming from a U.S. federal funds rate hike.

Keywords: Global liquidity; Monetary transmission; Divergent responses; Panel factor-augmented VAR (search for similar items in EconPapers)
JEL-codes: F32 F42 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-11-15
New Economics Papers: this item is included in nep-mac and nep-mon
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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2016-15.pdf Working Paper, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1615

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