“Information and pure monetary policy shocks in monetary policy surprises : transmission of U.S. monetary policy to Emerging Markets and implications for the banking sector”

Abstract

Chapter 1 analyzes how monetary policy surprises in the U.S. affect emerging market economies (EMs) by focusing on the transmission through the real exchange rate (RER) and country spreads (EMBI). To do so, I disentangle U.S. interest rate movements between both a pure monetary policy shock and an information shock; while the former is constructed based on high-frequency movements of interest rates around Federal Open Market Committee (FOMC) announcements, the latter builds from employment releases. I quantify the relative impacts using a structural VAR (SVAR) model with external instruments. The results suggest that a pure monetary policy shock produces a persistent appreciation of the RER in the U.S. coupled with an increase of the EMBI, which induces contractionary effects in the real sector of EMs. In contrast, an information shock does not necessarily produce such contractionary effects in EMs. These results contribute to the literature by identifying the specific drivers behind Fed announcements and its transmission channels to EMs. Chapter 2 analyzes how monetary policy surprises in Chile affects the real and financial sector separating between the same shocks related to monetary policy interest rate mentioned in Chapter 1. Using inter-day movements of futures of interest rate in the banking system, we identify an information shock when labor data is released and a pure monetary policy shock when the central bank reveals their interest rate decision, and their effects are quantified through an external vector autoregression model. Our results suggest that a pure monetary policy shock produce an appreciation of nominal exchange rate, and contractionary effects on the economy. However, an information shock does not necessarily produce adverse effects. This paper contribute to the literature in two dimensions: studying the effect of the main driver behind the central bank announcements, and their transmission to the banking sector and consequently to the real and monetary sector.