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Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2025
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18 November 2015
20151447804800000
No. 009

Monetary Policy and Financial Spillovers: Losing Traction?

Abstract

Has financial globalisation compromised central banks' ability to manage domestic financial conditions? This paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies. To gauge the extent to which external financial conditions complicate the conduct of monetary policy, we isolate a "contagion" component by focusing on comovements in measures of bond return risk premia that are unrelated to economic fundamentals. Our contagion measure is designed to more accurately capture spillovers driven by exogenous global shifts in risk preference or appetite. The analysis reaches several conclusions that run counter to popular presumptions based on comovements in bond yields. In particular, emerging market economies appear to be much less susceptible to global contagion than advanced economies, and the overall sensitivities to contagion have not increased post-crisis.

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JEL: E40E43E44E50E52F30F41G15
Tags: monetary policyfinancial spilloverscontagioninterest ratestrilemmabond risk premiumcapital flows
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Piti Disyatat
Piti Disyatat
Bank of Thailand
Phurichai Rungcharoenkitkul
Phurichai Rungcharoenkitkul
Bank of Thailand

Puey Ungphakorn Institute for Economic Research

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Phone: 0-2283-6066

Email: pier@bot.or.th

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