Actions for Spillovers from U.S. Monetary Policy Normalization on Brazil and Mexico's Sovereign Bond Yields

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Spillovers from U.S. Monetary Policy Normalization on Brazil and Mexico's Sovereign Bond Yields / by Carlos Góes [and others].

Author
Goes, Carlos
Published
Washington, D.C. : International Monetary Fund, 2017.
Physical Description
1 online resource (40 pages).
Additional Creators
Kamil, Herman and De Imus, Phil
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Contents
Cover; Contents; Abstract; I. Introduction; II. Literature Review; III. Data Description and Model Specification; A. Data Description; B. Model Specification and Estimation; IV. Baseline Results; A. Impulse Responses of Local-Currency 10-Year Sovereign Bond Yields; B. Observed and Model-Based Yield Estimates around "Tapering Talk"; V. Counterfactual Analysis; VI. Analysis of Cointegration and Long-Run Equilibria; VII. Statistical Robustness; VIII. Discussion and Policy Implications; IX. Concluding Remarks; Appendices; I. Pre-Estimation Tests. and II. Cointegration Test for Near-Integrated VariablesIII. Time Series Plots; IV. Impulse Response Functions; References.
Summary
This paper examines the transmission of changes in the U.S. monetary policy to localcurrency sovereign bond yields of Brazil and Mexico. Using vector error-correction models, we find that the U.S. 10-year bond yield was a key driver of long-term yields in these countries, and that Brazilian yields were more sensitive to U.S. shocks than Mexican yields during 2010-13. Remarkably, the propagation of shocks from U.S. long-term yields was amplified by changes in the policy rate in Brazil, but not in Mexico. Our counterfactual analysis suggests that yields in both countries temporarily overshot the values predicted by the model in the aftermath of the Fed's "tapering" announcement in May 2013. This study suggests that emerging markets will need to contend with potential spillovers from shifts in monetary policy expectations in the U.S., which often lead to higher government bond interest rates and bouts of volatility.
Subject(s)
ISBN
9781475586732 (electronic bk.)
1475586736 (electronic bk.)
1475586736
1475586701
1475586078
9781475586077
View MARC record | catkey: 43659366