IMF Working Papers

Monetary Policy Transmission in Emerging Markets: Proverbial Concerns, Novel Evidence

By Ariadne Checo, Francesco Grigoli, Damiano Sandri

May 3, 2024

Download PDF Order a Print Copy
Order a Print Copy

Preview Citation

Format: Chicago

Ariadne Checo, Francesco Grigoli, and Damiano Sandri. Monetary Policy Transmission in Emerging Markets: Proverbial Concerns, Novel Evidence, (USA: International Monetary Fund, 2024) 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

Doubts persist about the effectiveness of monetary transmission in emerging markets, but the empirical evidence is scarce due to challenges in identifying monetary policy shocks. In this paper, we construct new monetary policy shocks using novel analysts’ forecasts of policy rate decisions. Crucial for identification, analysts can update forecasts up to the policy meeting, allowing them to incorporate any relevant data release. Using these shocks, we show that monetary transmission in emerging markets operates similarly to advanced economies. Monetary tightening leads to a persistent increase in bond yields, a contraction in real activity, and a delayed reduction in inflation. Furthermore, monetary policy impacts leveraged firms more strongly.

Keywords: Emerging markets., Financial markets, Monetary policy shocks

Publication Details

  • Pages:

    46

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2024/093

  • Stock No:

    WPIEA2024093

  • ISBN:

    9798400268564

  • ISSN:

    1018-5941