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

Author/Editor: Borensztein, Eduardo ; Zettelmeyer, Jeromin ; Philippon, Thomas
Publication Date: January 01, 2001
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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 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.
Series: Working Paper No. 01/1
Subject(s): Emerging markets | Exchange rate regimes | Monetary policy | Interest rates | Singapore | Chile | Australia | China, People's Republic of | United States | Argentina | New Zealand | Canada | Mexico

Author's Keyword(s): Monetary policy | exchange rate regime | interest rates | risk premium
Publication Date: January 01, 2001
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0012001 Pages: 49
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