## When Policy Bites: State-Dependent Monetary Policy Transmission in Emerging Markets

_IMF Working Papers, May 15, 2026_

## Source details

**Canonical URL:** [When Policy Bites: State-Dependent Monetary Policy Transmission in Emerging Markets](https://www.imf.org/en/publications/wp/issues/2026/05/14/when-policy-bites-state-dependent-monetary-policy-transmission-in-emerging-markets-576113)

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## Bibliographic details
- Authors: Lucyna Gornicka, Sumaiyah R Mirza, Vina Nguyen, Jerome Vandenbussche
- Published: May 15, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229046084.001

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### Main findings
- Study documents state-dependence of monetary policy transmission to output and core consumer prices in a sample of eleven large inflation-targeting emerging markets.
- Monetary policy has strong effects on output:
  - During recessions.
  - After a period of loose monetary policy.
- Monetary policy has little to no impact on output:
  - During expansions.
  - When monetary policy has been tight.
- Response of prices is muted regardless of:
  - Business cycle position.
  - Monetary policy stance.
- Transmission depends on trend inflation:
  - When trend inflation is low, monetary policy has a stronger impact on output and a weaker effect on prices.
  - When trend inflation is high, output response is dampened and price adjustments are amplified.

### Mechanisms and interpretation
- Findings are broadly consistent with the presence of:
  - Financial frictions in the form of occasionally binding borrowing constraints.
  - Endogenous frequency of price adjustments.
  - Loss aversion preferences.
  - A convex Phillips Curve.

### Policy implications
- Monetary policy effectiveness on output is state-dependent; levers are more potent in recessions and following loose policy episodes.
- Price responses are relatively muted across business cycle and policy stance states, suggesting limited near-term inflationary sensitivity except when trend inflation is high.
- Consideration of trend inflation regimes is important for calibrating expected trade-offs between output stabilization and price stability.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2026/05/14/when-policy-bites-state-dependent-monetary-policy-transmission-in-emerging-markets-576113_