The Federal Reserve, Emerging Markets, and Capital Controls: A High Frequency Empirical Investigation

Sebastian Edwards

NBER Working Paper No. 18557
Issued in November 2012
NBER Program(s):   DEV   IFM   ME

In this paper I use weekly data from seven emerging nations - four in Latin America and three in Asia - to investigate the extent to which changes in Fed policy interest rates have been transmitted into domestic short term interest rates during the 2000s. The results suggest that there is indeed an interest rates "pass through" from the Fed to emerging markets. However, the extent of transmission of interest rate shocks is different - in terms of impact, steady state effect, and dynamics - in Latin America and Asia. The results also indicate that capital controls are not an effective tool for isolating emerging countries from global interest rate disturbances. Changes in the slope of the U.S. yield curve, including changes generated by a "twist" policy, affect domestic interest rates in emerging countries. I also provide a detailed case study for Chile.

download in pdf format
   (1136 K)

email paper

A non-technical summary of this paper is available in the April 2013 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (1136 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18557

Published: The Federal Reserve, the Emerging Markets, and Capital Controls: A High-Frequency Empirical Investigation SEBASTIAN EDWARDS Article first published online: 18 DEC 2012 DOI: 10.1111/j.1538-4616.2012.00556.x © 2012 The Ohio State University Issue Journal of Money, Credit and Banking Journal of Money, Credit and Banking Volume 44, Issue Supplement s2, pages 151–184, December 2012

Users who downloaded this paper also downloaded these:
Klein w18526 Capital Controls: Gates versus Walls
Bekaert and Popov w18556 On the Link Between the Volatility and Skewness of Growth
Bai and Wei w18600 When Is There a Strong Transfer Risk from the Sovereigns to the Corporates? Property Rights Gaps and CDS Spreads
Cespedes and Velasco w18569 Macroeconomic Performance During Commodity Price Booms and Busts
Wolff w18559 The Asset Price Meltdown and the Wealth of the Middle Class
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us