Description

This paper analyzes how monetary policy surprises in the U.S. affects emerging market economies (EMs) focusing on the transmission through the real exchange rate (RER) and country spreads (EMBI). To do so, we disentangle U.S. interest rate movements between both a pure monetary policy shock and an information shock: while the former is constructed based on high-frequency movements of the interest rate around FOMC announcements, the latter builds from major macroeconomic releases. We quantify their relative impacts through an SVAR model with external instruments. The results suggest that a pure monetary policy shock produces a persistent appreciation of the RER in the U.S. coupled with an increase of the EMBI that induces contractionary effects in the real sector of EMs. In contrast, an information shock does not necessarily produce such contractionary effects in EMs. These results contribute to the literature in identifying the specific drivers behind each movement in Fed announcements and its transmission to EMs.