Quantifying the Ripple Effects of Monetary Policy Shifts on Emerging Market Economies: A Structural VAR Approach

Abstract

This research examines the intricate dynamics between monetary policy shifts in developed economies and their ripple effects on emerging market economies (EMEs). Employing a Structural Vector Autoregression (SVAR) model, we analyze quarterly data from 2000 to 2023 across multiple EMEs. The findings reveal significant transmission mechanisms, with interest rate changes in the US leading to substantial capital flow volatility in EMEs. Furthermore, our results suggest varied sensitivity levels among different economies, underscoring the necessity for tailored economic policies. This comprehensive study fills a critical gap in the literature by providing empirical evidence on how external monetary policies impact domestic economic stability, emphasizing the importance of understanding these relationships for policymakers aiming to mitigate adverse economic effects. Our conclusions provide benchmarks for further investigations into optimizing monetary policy strategies in the context of globalization.