External shocks and monetary policy in emerging countries

par Rémy Charleroy

Thèse de doctorat en Sciences économiques

Sous la direction de Christian Bordes et de Mathilde Maurel.

Soutenue le 25-03-2015

à Paris 1 , dans le cadre de École doctorale d'Économie (Paris) , en partenariat avec Centre d'économie de la Sorbonne (Paris) (équipe de recherche) .

Le président du jury était Eric Girardin.

Le jury était composé de Christian Bordes, Mathilde Maurel, Eric Girardin.

Les rapporteurs étaient Jean-Louis Combes, Jean-Baptiste Pentecôte.

  • Résumé

    We investigate the conditional correlation between exchange rate and inflation by using a multivariate BEKK GARCH model. This framework is tested on 20 emerging countries independently of each other and it allows one to consider the macroeconomic variables as having a nonlinear relationship over time. We show that the less credible a country is in applying an IT framework because of its monetary objectives or its interventions in the foreign exchange rate markets, the higher the interactions between both variables are. We also show that the adoption of an inflation target allows the decoupling of variables when the inflation volatility increases, and that the estimated central bank’s reaction function explains the diminution in conditional correlation when the exchange rate or both variables volatility augments. By analyzing the evolution of exchange rate pass-through we investigate the degree of vulnerability of macroeconomic variables in BRICS since the mid-1990s when they experience an external shock. Wefocus our study on the two main theories that explain the reduction of macroeconomic variables volatility: the ”good policy” theory with the adoption by central banks of an inflation targeting framework coupled with a flexible exchange rate regime and the ”good luck” theory with the reduction of external shock persistence. The distinction between the theories is made by testing several time-varying parameters vector autoregressive models with different priors on VAR parameters for the structural changes and on the variance-covariance matrix for the stochastic volatility. Among other results, we conclude that the ”good luck” theory seems to be the dominant factor that explain the reduction in the vulnerabilities of BRICS to an external shock and that the 2008 financial crisis does not lead to a significant increase in the ERPT compared to previous crisis. The recent financial crisis has heightened the interest in the impact of financial sector developments on the macroeconomic condition of countries. By employing a rolling-window Vector Auto-Regressive method based on monthly data for a time span between January 2001 and March 2013, this article sets up a comprehensive financial conditions index for a set of major emerging countries. The index sheds light on the various triggers of financial crises during this period and captures both domestic developments as well as global spillover effects. Index dynamics exhibit an overall abrupt slowdown due to the 2007-2008 financial crisis, precipitated primarily through a global liquidity squeeze and overall financial sector strain. In some countries, rising volatility of financial conditions thereafter has substantially been sparked by nominal effective exchange rate movements. Tested on its forecasting applicability, the inclusion of macroeconomic and financial variables enables the index to also perform well as a leading indicator for business cycles.

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  • Bibliothèque : Bibliothèque Cujas de droit et de sciences économiques (Paris).
  • Bibliothèque : Bibliothèque électronique de l'université Paris 1 Panthéon-Sorbonne.
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