Trilemma or dilemma : inspecting the heterogeneous response of local currency interest rates to foreign rates /

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Bibliographic Details
Author / Creator:	Ricci, Luca Antonio, author, (IMF staff)
Imprint:	[Washington, D.C.] : International Monetary Fund, [2016]. ©2016
Description:	1 online resource (39 pages) : color illustrations.
Language:	English
Series:	IMF working paper ; WP/16/75 IMF working paper ; WP/16/75.
Subject:	Monetary policy -- Developed countries -- Econometric models. Interest rates -- Developed countries -- Econometric models. Banks and banking, Central -- Developed countries -- Econometric models. Foreign exchange rates -- Developed countries -- Econometric models. Capital movements -- Developed countries -- Econometric models. Banks and banking, Central -- Econometric models. Capital movements -- Econometric models. Foreign exchange rates -- Econometric models. Interest rates -- Econometric models. Monetary policy -- Econometric models. Developed countries.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12504845

Hidden Bibliographic Details
Other authors / contributors:	Shi, Wei (Economist), author, (IMF staff) International Monetary Fund. Western Hemisphere Department, issuing body.
ISBN:	1475522924 9781475522921
ISSN:	1018-5941
Notes:	"March 2016." At head of title: "Western Hemisphere Department." Includes bibliographical references (pages 28-30). Online resource; title from pdf title page (IMF.org Web site, viewed March 28, 2016).
Summary:	This paper studies the heterogeneous response across countries of local currency interest rates to foreign and domestic factors, thus contributing to the discussion on the policy trilemma in international economics. On average, floaters appear to be less affected by the U.S. in the short run (up to about one year). However, there is large cross-country heterogeneity in the response: floaters that care less about domestic objectives, exhibit stronger fear of floating, or show higher co-cyclicality with the U.S., respond more to foreign rates. This suggests that floating does not necessarily imply a lack of response of local policy rates to foreign ones, but seems to allow independence when needed. Moreover, the effect of foreign rates on the short end of the local interest rate curve seems to operate mainly via the foreign influence on local policy rates, thus suggesting that central banks may be themselves the source of conduit of the "global credit cycle" discussed by Rey (2014). At the same time, most countries face the equivalent of a "Greenspan conundrum" as their long term rates are mainly influenced by foreign factors.--Abstract.
Standard no.:	10.5089/9781475522921.001

Table of Contents:

Cover; Contents; Abstract; I. INTRODUCTION; II. DATA; III. METHODOLOGY; IV. RESULTS; A. Creating a short term (ST) Baseline: USM and USYC Models; B. The Trilemma; C. Why Not All Floaters Appear Independent?; D. Do Foreign Rates Generate the Equivalent of a Greenspan Conundrum for Central Bankers?; V. ROBUSTNESS CHECKS; A. Do Global Factors and Exchange Rate Alter The Picture?; B. Baseline versus Error-Correction Model (ECM); C. Adding Output Gap; D. Structural Change During the Recent Global Crisis; VI. CONCLUSIONS; Tables; 1. Baseline Panel (ST)
2. Why Floaters Have Different Pass-through (Floaters only, ST)Figures; 1. Relevance of Foreign Variables (ST); 2. Effect Across the Curve (ST); 3. Floating/Capital Controls Buy Short-Term Independence; 4. USM Panel Mean-Group Estimates and Confidence Interval (ST); 5. Following U.S. vs. Controlling Inflation (Floaters only, ST); 6. Interest Rate vs. Reserve Intervention (Floaters only, ST); 7. Do Floaters Need Different MP? (ST); 8. Effect Across the Curve with Local Policy Rate (ST); 9. Robustness-Baseline vs. Error-Correction (ST); 10. Robustness-Output Gap (ST)
11. Robustness-Pre-2009 vs. Full Sample (ST)Appendix; Additional Material; Appendix Tables; 1. ER Regime/K Control Development; 2. Model Fit for Brazil-Baseline (LT); 3. Model Fit for Mexico-Baseline (LT); 4. Floating Allow More Reaction to Domestic Inflation (ST); 5. Country-Specific Response to U.S. over Different Horizon; 6. ST vs. LT Responses to U.S. Rate; 7. Greenspan Conundrum for EM (LT & ST); 8. Effect Across the Curve (ST, Global Factors & NEER); 9. Response to U.S. Rate vs. ER Regime/K Control; References

Trilemma or dilemma : inspecting the heterogeneous response of local currency interest rates to foreign rates /

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