Spillovers to Emerging Markets from US Economic News and Monetary Policy

Philipp Engler, Roberto Piazza and Galen Sher

No 2023/107, IMF Working Papers from International Monetary Fund

Abstract: When the U.S. economy sneezes, do emerging markets catch a cold? We show that economic news, and not just monetary policy, in the United States affects financial conditions in emerging markets. News about U.S. employment has the strongest effects, followed by news about economic activity and about vaccines during the COVID-19 pandemic. News about inflation has instead limited effects on average. A key channel of international transmission of U.S. economic news appears to be the risk perceptions or risk aversion of international investors. We also show that some of the transmission of U.S. economic news occurs independently of the U.S. monetary policy reaction. Finally, we expand on evidence that financial conditions in the U.S. and emerging markets respond differently to U.S. monetary policy surprises, depending on the reaction of US stock prices.

Keywords: Spillovers; economic news; emerging markets; financial conditions; monetary policy surprise; spillovers to emerging markets; measurement error; emerging market interest rates; term premium; Emerging and frontier financial markets; Market interest rates; Asset prices; Monetary tightening; Sovereign bonds; Global (search for similar items in EconPapers)
Pages: 36
Date: 2023-05-19
New Economics Papers: this item is included in nep-cba and nep-mon
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