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Monetary Transmission: Are Emerging Market and Low-Income Countries Different?

Ales Bulir () and Jan Vlcek ()

Working Papers from Czech National Bank, Research Department

Abstract: We use two representations of the yield curve, by Litterman and Scheinkman (1991) and by Diebold and Li (2006), to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in a sample of emerging market and low-income countries. We find a robust link from short-term policy and interbank rates to longer-term bond yields. Two policy implications emerge. First, the presence of well-developed secondary financial markets does not seem to affect transmission of short term rates along the yield curve. Second, the strength of the transmission mechanism seems to be affected by the choice of monetary regime: advanced countries with a credible IT regime seem to have "better behaved" yield curves than those with other monetary regimes.

Keywords: Monetary transmission; yield curve (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2016-03
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Working Paper: Monetary Transmission; Are Emerging Market and Low Income Countries Different? (2015) Downloads
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