Monetary Policy Transmission in Emerging Markets and Developing Economies

Author/Editor:

Luis Brandao-Marques ; R. G Gelos ; Thomas Harjes ; Ratna Sahay ; Yi Xue

Publication Date:

February 21, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

Series:

Working Paper No. 20/35

Subject:

English

Publication Date:

February 21, 2020

ISBN/ISSN:

9781513529738/1018-5941

Stock No:

WPIEA2020035

Format:

Paper

Pages:

54

Please address any questions about this title to publications@imf.org