Monetary transmission: Are emerging market and low-income countries different?

We use the Christensen, Diebold, and Rudebusch (2011) representation of the yield curve to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in advanced, emerging market, and low-income countries. We find a robust link from the policy an...

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Bibliographic Details
Published inJournal of policy modeling Vol. 43; no. 1; pp. 95 - 108
Main Authors Bulíř, Aleš, Vlček, Jan
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.01.2021
Subjects
Emerging market and low-income countries
Monetary transmission
Yield curve
Yield curve
G12
E52
E43
Monetary transmission
Emerging market and low-income countries
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Summary:We use the Christensen, Diebold, and Rudebusch (2011) representation of the yield curve to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in advanced, emerging market, and low-income countries. We find a robust link from the policy and short-term interbank rates to the longer-term bond yields in all countries. Two policy implications emerge. First, the presence of well-developed secondary markets does not seem to affect transmission of short term rates along the yield curve. Second, the strength of the transmission mechanism seems to be affected by the choice of the monetary regime and the level of development: advanced countries with a credible inflation targeting regime seem to have better-behaved yield curves than the countries with other monetary regimes.
ISSN:0161-8938
1873-8060
DOI:10.1016/j.jpolmod.2020.06.006