Trouble Every Day: Monetary Policy in an Open Emerging Market
Sep 29, 2024
1 min read
Four factors drive the high-frequency impact of monetary policy announcements in South Africa: affecting short-, mid-, and long-term yields, and country risk. Controlling for information effects, we build IVs for conventional monetary policy, forward guidance, term premia, country risk and information shocks. Conventional monetary policy has textbook contractionary effects. Policy communication, particularly forward guidance, has persistent effects on output and prices. Country risk is a novel and powerful channel of monetary policy communication in emerging markets. By defending its independence, restating its inflation target, and addressing external shocks, the central bank can mitigate country risk and generate expansionary effects.
I was on https://spielautomatenechtgeld.com earlier, and the way risk can flip there reminded me of how quickly markets react to a central bank’s tone. The article’s point that forward guidance has lasting effects on output and prices, while country risk operates as its own channel, makes a strong case that communication is a policy tool in its own right. I’ve seen similar dynamics in other emerging markets, where a credible statement does more than any rate move.
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