Discussion Paper

No. 2013-61 | December 09, 2013
Monetary Policy Shocks and Macroeconomic Variables: Evidence from Fast Growing Emerging Economies

Abstract

This paper investigates both the effects of domestic monetary policy and external shocks on fundamental macroeconomic variables in six fast growing emerging economies: Brazil, Russia, India, China, South Africa and Turkey—denoted hereafter as BRICS_T. The authors adopt a structural VAR model with a block exogeneity procedure to identify domestic monetary policy shocks and external shocks. Their research reveals that a contractionary monetary policy in most countries appreciates the domestic currency, increases interest rates, effectively controls inflation rates and reduces output. They do not find any evidence of the price, output, exchange rates and trade puzzles that are usually found in VAR studies. Their findings imply that the exchange rate is the main transmission mechanism in BRICS_T economies. The authors also find that that there are inverse J-curves in five of the six fast growing emerging economies and there are deviations from UIP (Uncovered Interest Parity) in response to a contractionary monetary policy in those countries. Moreover, world output shocks are not a dominant source of fluctuations in those economies.

Data Set

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The data set for this article can be found at: http://dx.doi.org/10.7910/DVN/23957

JEL Classification

E52 E63 F14 F31 C51

Cite As

Mehmet Ivrendi and Zekeriya Yildirim (2013). Monetary Policy Shocks and Macroeconomic Variables: Evidence from Fast Growing Emerging Economies. Economics Discussion Papers, No 2013-61, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-61

Assessment



Comments and Questions


Anonymous - Referee Report
March 31, 2014 - 08:20

see attached file


Mehmet Ivrendi - Reply to Referee Report 1
April 17, 2014 - 14:44

See attached file