Monetary News, U.S. Interest Rate and Business Cycles in Emerging Economies

Alejandro Vicondoa

No ECO2016/10, Economics Working Papers from European University Institute

Abstract: This paper identifies anticipated (news) and unanticipated (surprise) shocks to the U.S. Fed Funds rate using CBOT Fed Funds Future Market and assesses their propagation to emerging economies. Anticipated movements account for 80% of quarterly Fed Funds fluctuations and explain a significant fraction of the narrative monetary policy shocks. An expected 1% increase in the reference interest rate induces a fall of 2% in GDP of emerging economies two quarters before the shock materializes. Unanticipated contractionary shocks also cause a recession. Both shocks have a larger impact in emerging relative to developed economies and the financial channel is the most relevant for their transmission. Anticipation is also relevant to understand the transmission of U.S. real interest rate shocks.

Keywords: International business cycle; Interest rate; News shocks; Small open economy (search for similar items in EconPapers)
JEL-codes: E32 E52 F41 F44 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-net
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Monetary News, U.S. Interest Rate and Business Cycles in Emerging Economies (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2016/10

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