Asymmetry and Endogeneity in Emerging Market Interest Response to U.S. Monetary Surprises.

摘要

OLS estimations find that without distinguishing between surprise increases and decreases in the Fed Funds target rate there are positive and significant responses for the US monetary policy surprise for majority of the countries in the sample of six countries (3 Latin American, 3 Asian). This shows that regardless of the exchange rate regime adopted, there exists an immediate reaction to US monetary surprises. However, when the data are split between days when there are only surprise increases and only surprise decreases in the Fed Funds target, interest rates in countries that have managed floats---Chile and Singapore---respond only to surprise US monetary expansions. Endogeneity issues influence all Asian countries in the sample as determined by Hausman tests. Two-stage least squares estimation addresses this issue and find evidence of asymmetry in the domestic interest rate response only for Singapore. Bootstrap confidence intervals for the domestic interest responses to US monetary policy surprises are estimated to address the short sample problem. These confirm the initial OLS estimates, but result mostly in insignificant coefficients in the 2SLS.