Template-Type: ReDIF-Paper 1.0
Author-Name: Julián Caballero
Author-X-Name-First: Julián
Author-X-Name-Last: Caballero
Author-Name: Blaise Gadanecz
Author-X-Name-First: Blaise
Author-X-Name-Last: Gadanecz
Title: Did interest rate guidance in emerging markets work?
Abstract: This paper studies the experience of emerging markets with explicit interest rate guidance during 2020-2021. Despite some heterogeneity, interest rate guidance generally provided additional monetary stimulus, as reflected in lower medium-term yields and lower term spreads. The magnitude of the reduction in 10-year yields ranged between five and twenty basis points, and these effects are found when the policy rate was at its historical minima. Outcome-based guidance appears to have had the largest effects. In the immediate aftermath of the guidance, we do not observe a systematic negative market reaction of the kind that would be associated with a loss of central bank credibility or with concerns about fiscal dominance, such as a de-anchoring of inflation expectations, currency depreciation pressures, or increased sovereign credit risk.
Creation-Date: 2023-03
File-URL: https://www.bis.org/publ/work1080.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1080.htm
File-Format: text/html
Number: 1080
Keywords: monetary policy; forward guidance; central bank communication; emerging markets
Classification-JEL: E52, E58
Handle: RePEc:bis:biswps:1080