Cover IMF Working Papers
Spillovers from U.S. Monetary Policy Normalization on Brazil and Mexico’s Sovereign Bond Yields
Author:
Carlos Góes
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Herman Kamil
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Phil De Imus
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Ms. Mercedes Garcia-Escribanonull

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Mr. Roberto Perrellinull

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Mr. Shaun K. Roache
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Jeremy Zooknull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 050
Language:
English
Publication Date:
10 Mar 2017
DOI:
https://doi.org/10.5089/9781475586077.001
ISBN:
9781475586077
ISSN:
1018-5941
Pages:
39
Keywords:
WP; yield; Treasury yield; Treasury; bond yield; QE; tapering; local-currency sovereign bond yields; vector error correction models; sovereign bond bond yield; yield shock; sovereign bond yield; local-currency sovereign bond bond yield; Bond yields; Yield curve; Sovereign bonds; Central bank policy rate; Securities markets; Global
Legal-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.
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This paper examines the transmission of changes in the U.S. monetary policy to localcurrency sovereign bond yields of Brazil and Mexico. Using vector error-correction models, we find that the U.S. 10-year bond yield was a key driver of long-term yields in these countries, and that Brazilian yields were more sensitive to U.S. shocks than Mexican yields during 2010–13. Remarkably, the propagation of shocks from U.S. long-term yields was amplified by changes in the policy rate in Brazil, but not in Mexico. Our counterfactual analysis suggests that yields in both countries temporarily overshot the values predicted by the model in the aftermath of the Fed’s “tapering” announcement in May 2013. This study suggests that emerging markets will need to contend with potential spillovers from shifts in monetary policy expectations in the U.S., which often lead to higher government bond interest rates and bouts of volatility.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 050