Monetary Policy Cyclicality in Emerging Economies / Pierre De Leo, Gita Gopinath, Ṣebnem Kalemli-Özcan.

Format:

Book

Author/Creator:

De Leo, Pierre.

Contributor:

National Bureau of Economic Research.

Gopinath, Gita.

Kalemli-Özcan, Ṣebnem.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30458.

NBER working paper series no. w30458

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

We document a disconnect between policy rates and short-term market rates in emerging economies. On the one hand, central banks in emerging economies follow Taylor-type rules and lower their policy rates when economic activity decelerates. On the other hand, the policy rate transmits only imperfectly to short-term market rates. We hypothesize that this disconnect emerges from these countries' reliance on fluctuating global financial conditions. Following an exogenous U.S. monetary policy tightening, emerging market central banks lower their policy rates in response to decelerating economic activity. Nevertheless, short-term market rates increase at the same time, inducing a contractionary force on economic activity. We show that such disconnect between policy rates and short-term market rates can be rationalized by a model where emerging economies' banks largely rely on international markets for their funding. Our results shed light on the questions of monetary policy cyclicality and autonomy in emerging economies.

Notes:

Print version record

September 2022.