Bond Markets and Monetary Policy Dilemmas for the Emerging Markets

30 Pages Posted: 10 Aug 2015

See all articles by Jhuvesh Sobrun

Jhuvesh Sobrun

Bank for International Settlements (BIS)

Philip Turner

University of Basel; National Institute for Economic and Social Research, London

Date Written: August 2015

Abstract

Financial conditions in the emerging markets (EMs) have become more dependent on the 'world' long-term interest rate, which has been driven down by monetary policies in the advanced economies - notably Quantitative Easing (QE) - and by several non-monetary factors. This paper analyses some new mechanisms that link global long-term rates to monetary policy and to domestic bank lending in the EMs. Understanding these mechanisms could help EM central banks prepare for the exit from QE and higher (and perhaps divergent) policy rates in advanced economies. Although monetary policy in the EMs has continued to be guided by domestic objectives, it has nevertheless lost some traction. Difficult trade-offs now confront central banks.

Keywords: Exit from QE, long-term interest rate, emerging market economies, bond markets

JEL Classification: E43, E52, E58

Suggested Citation

Sobrun, Jhuvesh and Turner, Philip, Bond Markets and Monetary Policy Dilemmas for the Emerging Markets (August 2015). BIS Working Paper No. 508, Available at SSRN: https://ssrn.com/abstract=2641091

Jhuvesh Sobrun (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, 4002
Switzerland

Philip Turner

University of Basel ( email )

Petersplatz 1
CH-4001 Basel
Switzerland

National Institute for Economic and Social Research, London ( email )

2 Dean Trench St
London, SW1P 3HE
United Kingdom

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