Monetary Policy Transmission in Emerging Markets and Developing Economies

Luis Brandao-Marques, Thomas Harjes, Ratna Sahay, Yi Xue and R. Gaston Gelos ()
Authors registered in the RePEc Author Service: Luis Brandao Marques

No 15931, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The effectiveness of monetary policy transmission in emerging markets and developing countries (EMDEs) remains subject to considerable debate in academia and among policymakers. Can EMDEs effectively steer inflation and output by controlling short-term interest rates? Or do structural features of these economies, in particular a lack of financial market depth, hinder such transmission? We conduct a novel empirical analysis using Jordà ’s (2005) approach for 39 EMDEs to answer these questions. We find that interest rate hikes do reduce output growth and inflation, if the exchange rate is allowed to adjust. Inflation targeting frameworks adopted by independent and transparent central banks matter more than structural features, such as financial development.

Keywords: Monetary policy; Emerging markets; Exchange rate channel; Inflation targeting; Financial structure (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 F4 G1 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Working Paper: Monetary Policy Transmission in Emerging Markets and Developing Economies (2020)
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