Trouble Every Day: Monetary Policy in an Open Emerging Economy

Ekaterina Pirozhkova, Giovanni Ricco () and Nicola Viegi

No 19094, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Four factors drive the high-frequency impact of monetary policy announcements in South Africa: affecting short-, mid-, and long-term yield curve, as well as country risk. Controlling for information effects, we build IVs to study the transmission of conventional monetary policy, forward guidance, term premia, country risk and information shocks. Our findings reveal textbook contractionary effects of conventional monetary policy. Policy communication, particularly forward guidance, has persistent effects on output and prices. Country risk is a novel and powerful channel of monetary policy communication in emerging markets. By defending its independence, re-stating its inflation target objective, and addressing external shocks, the central bank can mitigate country risk and generate strong expansionary effects.

Keywords: Monetary policy; Small open economy; Emerging markets; Inflation targeting (search for similar items in EconPapers)
JEL-codes: E5 F3 F4 (search for similar items in EconPapers)
Date: 2024-05
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Working Paper: Trouble Every Day: Monetary Policy in an Open Emerging Economy (2024)
Working Paper: Trouble Every Day: Monetary Policy in an Open Emerging Economy (2024)
Working Paper: Trouble Every Day: Monetary Policy in an Open Emerging Economy (2024)
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