The impact of financial factors on monetary policy responses in emerging market economies
Purpose: This study investigates the monetary policy responses of emerging market inflation targeters to financial factors both before and after the 2008 global financial crisis (GFC). Methodology: Taylor rules, augmented with the nominal exchange rate, the exchange market pressure index, and the...
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| Format: | Article |
| Language: | English |
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Faculty of Economics and Business in Osijek
2023-01-01
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| Series: | Ekonomski Vjesnik |
| Subjects: | |
| Online Access: | https://hrcak.srce.hr/file/451607 |
| _version_ | 1797206179672227840 |
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| author | Ali İlhan |
| author_facet | Ali İlhan |
| author_sort | Ali İlhan |
| collection | DOAJ |
| description | Purpose: This study investigates the monetary policy responses of emerging market inflation targeters to financial factors both before and after the 2008 global financial crisis (GFC).
Methodology: Taylor rules, augmented with the nominal exchange rate, the exchange market pressure index, and the U.S. federal funds effective rate, are analyzed by using the augmented mean group (AMG) panel estimator for 12 emerging market economies (EMEs) that adopted an inflation targeting regime. The sample is divided into two periods around the GFC: 2002Q1-2007Q4 and 2010Q1-2019Q4.
Results: Inflation significantly and positively impacted interest rate settings during both periods. The panel AMG results indicate that the EMEs’ responses to financial variables only had a significant effect during the post-crisis period, while the federal funds effective rate had the most impact among the financial variables. The country-specific results indicate that some central banks also reacted to financial variables before the GFC.
Conclusion: Inflation played an important role in policy rate decisions for both periods despite the slightly decreasing weight in interest rate settings after the GFC due to the increasing influence of financial variables. Although financial variables were important in setting interest rates during both periods, the EMEs’ post-GFC monetary policies focused more on financial stability. Furthermore, their monetary policies became more compatible with external financial conditions after the GFC. |
| first_indexed | 2024-04-24T09:02:54Z |
| format | Article |
| id | doaj.art-62846e0c78d94c5181794e4e0147ac91 |
| institution | Directory Open Access Journal |
| issn | 0353-359X 1847-2206 |
| language | English |
| last_indexed | 2024-04-24T09:02:54Z |
| publishDate | 2023-01-01 |
| publisher | Faculty of Economics and Business in Osijek |
| record_format | Article |
| series | Ekonomski Vjesnik |
| spelling | doaj.art-62846e0c78d94c5181794e4e0147ac912024-04-15T19:13:15ZengFaculty of Economics and Business in OsijekEkonomski Vjesnik0353-359X1847-22062023-01-0136225526810.51680/ev.36.2.3The impact of financial factors on monetary policy responses in emerging market economiesAli İlhan0Tekirdağ Namık Kemal University, Department of Economics, Tekirdağ, TurkeyPurpose: This study investigates the monetary policy responses of emerging market inflation targeters to financial factors both before and after the 2008 global financial crisis (GFC). Methodology: Taylor rules, augmented with the nominal exchange rate, the exchange market pressure index, and the U.S. federal funds effective rate, are analyzed by using the augmented mean group (AMG) panel estimator for 12 emerging market economies (EMEs) that adopted an inflation targeting regime. The sample is divided into two periods around the GFC: 2002Q1-2007Q4 and 2010Q1-2019Q4. Results: Inflation significantly and positively impacted interest rate settings during both periods. The panel AMG results indicate that the EMEs’ responses to financial variables only had a significant effect during the post-crisis period, while the federal funds effective rate had the most impact among the financial variables. The country-specific results indicate that some central banks also reacted to financial variables before the GFC. Conclusion: Inflation played an important role in policy rate decisions for both periods despite the slightly decreasing weight in interest rate settings after the GFC due to the increasing influence of financial variables. Although financial variables were important in setting interest rates during both periods, the EMEs’ post-GFC monetary policies focused more on financial stability. Furthermore, their monetary policies became more compatible with external financial conditions after the GFC.https://hrcak.srce.hr/file/451607emerging market economiesfinancial stabilitymonetary policypanel AMGTaylor rule |
| spellingShingle | Ali İlhan The impact of financial factors on monetary policy responses in emerging market economies Ekonomski Vjesnik emerging market economies financial stability monetary policy panel AMG Taylor rule |
| title | The impact of financial factors on monetary policy responses in emerging market economies |
| title_full | The impact of financial factors on monetary policy responses in emerging market economies |
| title_fullStr | The impact of financial factors on monetary policy responses in emerging market economies |
| title_full_unstemmed | The impact of financial factors on monetary policy responses in emerging market economies |
| title_short | The impact of financial factors on monetary policy responses in emerging market economies |
| title_sort | impact of financial factors on monetary policy responses in emerging market economies |
| topic | emerging market economies financial stability monetary policy panel AMG Taylor rule |
| url | https://hrcak.srce.hr/file/451607 |
| work_keys_str_mv | AT aliilhan theimpactoffinancialfactorsonmonetarypolicyresponsesinemergingmarketeconomies AT aliilhan impactoffinancialfactorsonmonetarypolicyresponsesinemergingmarketeconomies |