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Why Follow the Fed? Monetary Policy in Times of U.S. Tightening
Author:
Gonzalo Huertas
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 243
Language:
English
Publication Date:
09 Dec 2022
DOI:
https://doi.org/10.5089/9798400225826.001
ISBN:
9798400225826
ISSN:
1018-5941
Pages:
68
Keywords:
Monetary policy; emerging markets. international spillovers; global interest rates; trilemma.
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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I conduct interviews with 32 Central Bankers from Emerging Markets and present five unifying themes that explain their behavior when reacting to a U.S. monetary tightening. I then estimate the impulse response functions of their two main monetary tools, the policy rate and foreign exchange interventions, to an increase in the U.S. rate, using the answers from the interviews as a guide for the best econometric specification. I find that most Central Banks react to a U.S. tightening by raising domestic rates, regardless of the exchange rate regime, but their reasons for doing so vary – from controlling inflation to preventing capital outflows.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 243