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Monetary news, U.S. interest rate and business cycles in emerging economies
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1725-6704
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EUI ECO; 2016/10
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VICONDOA, Alejandro, Monetary news, U.S. interest rate and business cycles in emerging economies, EUI ECO, 2016/10 - https://hdl.handle.net/1814/41444
Abstract
This paper identifies anticipated (news) and unanticipated (surprise) shocks to the U.S. Fed Funds rate using CBOT Fed Funds Future Market and assesses their propagation to emerging economies. Anticipated movements account for 80% of quarterly Fed Funds fluctuations and explain a significant fraction of the narrative monetary policy shocks. An expected 1% increase in the reference interest rate induces a fall of 2% in GDP of emerging economies two quarters before the shock materializes. Unanticipated contractionary shocks also cause a recession. Both shocks have a larger impact in emerging relative to developed economies and the financial channel is the most relevant for their transmission. Anticipation is also relevant to understand the transmission of U.S. real interest rate shocks.