Spillovers of U.S. monetary policy uncertainty on inflation targeting emerging economies

Abstract

We investigate for spillovers from monetary policy uncertainty in the United States to the policy rates of seven inflation targeting emerging economies — Brazil, Chile, Colombia, Indonesia, Mexico, Poland, and South Africa. We use monthly data, with the start of the sample period being dictated by the start of the inflation targeting regime, and a multivariate GARCH-in-Mean vector autoregression (VAR), controlling for the traditional Taylor rule type variables. We also use a multivariate structural VAR and a different measure of U.S. monetary policy uncertainty, achieving identification by a combination of short-run and long-run restrictions. Our evidence shows that U.S. monetary policy uncertainty, irrespective of how it is measured, has negative effects on the macroeconomic and financial fundamentals of emerging economies.