Bank for International Settlements
Institutional Affiliation: Bank for International Settlements
NBER Working Papers and Publications
|November 2015||Self-Oriented Monetary Policy, Global Financial Markets and Excess Volatility of International Capital Flows|
with Michael B. Devereux, Giovanni Lombardo: w21737
This paper explores the nature of macroeconomic spillovers from advanced economies to emerging market economies (EMEs) and the consequences for independent use of monetary policy in EMEs. We first empirically document the effects of US monetary policy shocks on a sample group of EMEs. A contractionary monetary shock leads a retrenchment in EME capital flows, a fall in EME GDP, and an exchange rate depreciation. We construct a the- oretical model which can help to account for these findings. In the model, macroeconomic spillovers are exacerbated by financial frictions. We assess the extent to which domestic monetary policy can mitigate the negative spillovers from foreign shocks. Absent financial frictions, international spillovers are minor, and an inflation targeting rule represents an ef...
Published: Ryan Banerjee & Michael B. Devereux & Giovanni Lombardo, 2016. "Self-oriented monetary policy, global financial markets and excess volatility of international capital flows," Journal of International Money and Finance, vol (). citation courtesy of