Spillovers to Emerging Markets from US Economic News and Monetary Policy

By Philipp Engler, Roberto Piazza, Galen Sher

May 19, 2023

Preview Citation

Format: Chicago

Philipp Engler, Roberto Piazza, and Galen Sher. Spillovers to Emerging Markets from US Economic News and Monetary Policy, (USA: International Monetary Fund, 2023) accessed December 21, 2024

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

When the U.S. economy sneezes, do emerging markets catch a cold? We show that economic news, and not just monetary policy, in the United States affects financial conditions in emerging markets. News about U.S. employment has the strongest effects, followed by news about economic activity and about vaccines during the COVID-19 pandemic. News about inflation has instead limited effects on average. A key channel of international transmission of U.S. economic news appears to be the risk perceptions or risk aversion of international investors. We also show that some of the transmission of U.S. economic news occurs independently of the U.S. monetary policy reaction. Finally, we expand on evidence that financial conditions in the U.S. and emerging markets respond differently to U.S. monetary policy surprises, depending on the reaction of US stock prices.

Subject: Asset prices, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial services, Market interest rates, Monetary policy, Monetary tightening, Prices, Sovereign bonds

Keywords: Asset prices, Economic news, Emerging and frontier financial markets, Emerging market interest rates, Emerging markets, Financial conditions, Global, Market interest rates, Measurement error, Monetary policy surprise, Monetary tightening, Sovereign bonds, Spillovers, Spillovers to emerging markets, Term premium

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/107
Stock No:

WPIEA2023107
ISBN:

9798400234811
ISSN:

1018-5941

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