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on International Finance |
| By: | Coman, Andra; Lloyd, Simon P. |
| Abstract: | We examine whether emerging market prudential policies help to reduce the macrofinancial spillover effects of US monetary policy. We find that emerging markets with tighter prudential policies face significantly smaller, and less negative, spillovers to total credit from US monetary policy tightening shocks. Loan-to-value ratio limits and reserve requirements appear to be particularly effective prudential measures at mitigating the spillover effects of US monetary policy. Our findings indicate that domestic prudential policies can dampen emerging markets’ exposure to US monetary policy and the associated global financial cycle, even when accounting for capital controls, suggesting they may be a useful tool in the face of international macroeconomic policy trade-offs. JEL Classification: E52, E58, E61, F44 |
| Keywords: | international spillovers, local projections, monetary policy, policy interactions, prudential policy |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192339&r=all |
| By: | Böhm, Hannes; Eichler, Stefan; Gießler, Stefan |
| Abstract: | Using daily data for 34 emerging markets in the period 1994-2016, we find robust evidence that higher export commodity prices are associated with higher sovereign bond returns (indicating lower sovereign risk). The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find, first, that commodity-dependence is higher for countries that export large volumes of volatile commodities and that the effect increases in times of recessions, high inflation, and expansionary U.S. monetary policy. Second, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Third, the concentration of commodities within a country's portfolio, its government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity-dependence. |
| Keywords: | sovereign bond prices,commodity prices,international finance,emerging market economies,institutions,U.S. monetary policy |
| JEL: | F36 G12 G15 G18 O13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:232019&r=all |