The authors investigate the influence of the center economies of the United States, Japan, the Eurozone, and China on financial conditions of developing and emerging market countries. While certain macroeconomic and institutional variables are important, the arrangement of open macro policies such as the exchange rate regime and financial openness are found to directly influence the sensitivity to the center economies. They also find, among other results, that an economy that pursues greater exchange rate stability and financial openness faces a stronger link with the center economies. Nonetheless, exchange rate regimes have mostly indirect effects on the strength of financial linkages.
Monetary Policy Spillovers and the Trilemma in the New Normal: Periphery Country Sensitivity to Core Country Conditions
- Volume or issue no.: La Follette School Working Paper No. 2015-005
- Author(s): Joshua Aizenman, Menzie D. Chinn, Hiro Ito
- Link to publication: Download PDF