Heterogeneity of Monetary Policy Spillovers to Monetary Responsiveness in Emerging Market Economies

Abstract

Discussions about monetary policy spillovers increased as major advanced economies move to policy normalization. In this paper, I investigate the differences in policy spillovers on monetary policy setting of emerging market economies. In particular, I investigated how interest differentials from major advanced economies, US, ECB and Japan, influence the movements of interest rates in emerging market economies. Using panel fixed effects regression, the results of this study show heterogeneity in the significance of policy spillover from US, ECB and Japan to emerging market economies. The results support previous findings that international monetary policy spillovers influence movements in short term interest rates, which is not explained by policy factors.