IMF Working Papers

Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?

By Thomas Philippon, Jeromin Zettelmeyer, Eduardo Borensztein

January 1, 2001

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Thomas Philippon, Jeromin Zettelmeyer, and Eduardo Borensztein. Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?, (USA: International Monetary Fund, 2001) accessed July 11, 2025
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 compares the impact of shocks to U.S. interest rates and emerging market bond spreads on domestic interest rates and exchange rates across several emerging market economies with different exchange rate regimes. Consistent with conventional priors, the results indicate that interest rates in Hong Kong react much more to U.S. interest rate shocks and shocks to international risk premia than interest rates in Singapore. The results are less clearcut in the comparison of Argentina and Mexico: While interest rates (and the exchange rate) in Mexico seem to react less to U.S. interest rate shocks, they react about the same to bond spread shocks, in addition to a significant impact on the exchange rate.

Subject: Emerging and frontier financial markets, Exchange rate arrangements, Exchange rates, Financial markets, Financial regulation and supervision, Floating exchange rates, Foreign exchange, Market risk

Keywords: Asia and Pacific, Australia and New Zealand, Basis point, Domestic interest rates, Emerging and frontier financial markets, Exchange rate arrangements, Exchange rate regime, Exchange rates, Federal funds futures, Floating exchange rates, Global, Interest rate response, Interest rate shock, Interest rates, Market risk, Monetary policy, Monetary policy shock, Risk premium, WP

Publication Details

  • Pages:

    49

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2001/001

  • Stock No:

    WPIEA0012001

  • ISBN:

    9781451841633

  • ISSN:

    1018-5941

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