The Rise of Dollar Credit in Emerging Market Economies and US Monetary Policy

Anni Huang and N Kishor

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the hypothesis that the boom in dollar credit in the emerging market economies is associated with excessively low interest rate in the US. For this purpose, we use a multivariate correlated unobserved component model that allows for correlation between shocks to dollar credit, interest rates and dollar index both in the short-run and in the long-run. In addition, it also provides us a quantitative estimate of the permanent and transitory movements in dollar credit in emerging markets, US interest rate and the dollar index. The results from this model do suggest that a temporary decline in interest rate and dollar index below their long-run levels are associated with an increase in dollar credit with a very high degree of negative correlation. The estimate of the cyclical component of the dollar credit in emerging market from our model captures the recent boom and bust in this market and compares favorably to a univariate trend-cycle decomposition benchmark.

Keywords: Dollar Credit; Emerging Market Economies; Monetary Policy Spillover; Trend-Cycle Decomposition; State-Space Model; Kalman Filter (search for similar items in EconPapers)
JEL-codes: E32 E51 E58 F32 F34 F36 G15 (search for similar items in EconPapers)
Date: 2017-05-01
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Related works:
Journal Article: The rise of dollar credit in emerging market economies and US monetary policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83474

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