Monetary Transmission: Are Emerging Market and Low Income Countries Different?
IMF Working Papers, November 20, 2015
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- Monetary Transmission: Are Emerging Market and Low Income Countries Different?
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Bibliographic details
- Authors: Aleš Bulíř, Jan Vlcek
- Published: November 20, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513554235.001
Summary and main finding
- Two alternative representations of the yield curve are used to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in a sample of emerging market and low-income countries.
- A robust link is found from short-term policy and interbank rates to longer-term bond yields.
Detailed findings
- Short-term policy rates and interbank rates transmit to longer-term bond yields in the sampled emerging market and low-income countries.
- The presence of well-developed secondary financial markets does not seem to affect transmission of short-term rates along the yield curve.
- The strength of the transmission mechanism is affected by the choice of the monetary regime: countries with a credible inflation targeting regime seem to have “better behaved” yield curves than those with other monetary regimes.
Policy implications
- Development of secondary financial markets alone should not be relied on to improve transmission of short-term rates along the yield curve.
- Adopting or strengthening a credible inflation targeting regime may improve the behavior of the yield curve and thereby enhance monetary transmission.
Subject tags and keywords (as provided)
- Subjects: Central bank policy rate, Central bank rates, Financial services, Inflation targeting, Interbank rates, Monetary policy, Yield curve
- Keywords: Africa, bond rate movement, central bank, central bank action, central bank interest rate, Central bank policy rate, Central bank rates, Inflation targeting, Interbank rates, interest rate move, monetary policy action, monetary policy rate, monetary policy regime, monetary policy stance, Monetary transmission, rate, well-behaved yield curve, WP, yield curve, yield curve pivot, yield curve variability, yield-curve calculation