IMF Working Papers

How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?

ByVivek Arora, Martin D. Cerisola

August 1, 2000

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Vivek Arora, and Martin D. Cerisola "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?", IMF Working Papers 2000, 148 (2000), accessed 12/7/2025, https://doi.org/10.5089/9781451856811.001

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper quantifies the economic impact of changes in U.S. monetary policy on emerging market countries. We explore empirically how country risk, as proxied by sovereign bond spreads, is influenced by U.S. monetary policy, country-specific fundamentals, and conditions in global capital markets. In addition, we simulate the direct effects of a tightening in U.S. monetary policy on economic conditions in developing countries. While country-specific fundamentals are important in explaining fluctuations in country risk, the stance and predictability of U.S. monetary policy are also important for stabilizing capital flows and capital market conditions and fostering economic growth in developing countries.

Subject: Debt service ratios, Emerging and frontier financial markets, External debt, Financial institutions, Financial markets, Public debt, Sovereign bonds, Treasury bills and bonds

Keywords: bond issue, contagion, country risk, Debt service ratios, Emerging and frontier financial markets, emerging market bond, emerging markets, flight to quality, Global, herding, interest rate, interest rate increase, interest rate volatility, interest-rate spread, market turbulence, market volatility, monetary policy, Multimod, sovereign bond spreads, Sovereign bonds, sovereign spread, Treasury bill yield, Treasury bills and bonds, Treasury yield, U.S. monetary policy, WP

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