Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203372 
Year of Publication: 
2017
Series/Report no.: 
ADB Economics Working Paper Series No. 532
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
We assess the effect of the United States (US) and domestic monetary policies on emerging market economies (EMEs) using a panel factor-augmented vector autoregressive model. We find a US policy rate hike outstrips a tantamount hike in EME policy rates in its impacts on EMEs and discover that bond flows are more sensitive to interest rate differentials than are equity flows. Tighter global or EME-specific policy entails divergent responses of growth and inflation in EMEs: in particular, the output loss is greater in those EMEs with higher inflation. When US monetary policy tightens, bond and equity markets in EMEs are prone to outflows. Domestic policy alone is not enough to counteract the effects of global policy shocks on capital flows in EMEs.
Subjects: 
divergent responses
global liquidity
monetary transmission
panel factor-augmented VAR
JEL: 
F32
F42
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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