Resolving Puzzles of Monetary Policy Transmission in Emerging Markets

• Tác giả: Jongrim Ha
• Ngôn ngữ: eng
• Ký hiệu phân loại: 332.46 Monetary policy
• Thông tin xuất bản: Washington, DC: World Bank, 2024
• Bộ sưu tập: Tài liệu truy cập mở
• ID: 296462
• Chủ đề: 1. EMERGING MARKET ECONOMIES; 2. FOREIGN EXCHANE PUZZLE; 3. MONETARY POLICY; 4. PRICE PUZZLE

Tóm tắt

Conventional empirical models of monetary policy transmission in emerging market economies produce puzzling results: monetary tightening often leads to an increase in prices (the price puzzle) and depreciation of the currency (the foreign exchange puzzle). This paper shows that incorporating forward-looking expectations into standard open economy structural vector autoregressive models resolves these puzzles. Specifically, the models are augmented with novel survey-based measures of expectations based on consumer, business, and professional forecasts. The findings show that the rise in prices following monetary tightening is related to currency depreciation, so eliminating the foreign exchange puzzle helps solve the price puzzle.