Discussion paper
DP18954 Monetary Policy Transmission in Emerging Markets: Proverbial Concerns, Novel Evidence
Proverbial concerns remain about the effectiveness of monetary policy in emerging markets. The empirical evidence is scarce due to challenges in identifying monetary policy shocks. In this paper, we construct new monetary policy shocks using analysts' forecasts of policy rate decisions. Crucial for identification, analysts can update forecasts up to the policy meeting to incorporate any information relevant to the policy rate decision. Using these shocks, we show that monetary transmission wields considerable traction on financial and macroeconomic conditions in emerging markets. Monetary tightening lifts bond yields, curbs real activity, reduces inflation, and impacts leveraged firms more strongly.
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