DeFiPP Research Seminar-Giovanni Ricco (Warwick University)

Trouble every day: Monetary policy in emerging economies, a study of South Africa

Abstract:

We present a comprehensive analysis of monetary policy in South Africa by employing a state-of-the-art high-frequency identification. Using future contracts, we extract three monetary policy surprises affecting the short-, mid-, and long-end of the yield curve. We report three main results from an event study and an identified VAR. First, conventional monetary policy works in a standard manner in a small open emerging market, with tightenings generating contractionary effects on real, nominal, and financial variables. Second, the exogenous shocks to the longer maturities produce effects compatible with risk premia shocks. Third, monetary surprises represent a relevant share of policy rate decisions, indicating that policymakers always surprise market participants. Furthermore, surprises correlate with the central bank forecasts, as well as global shocks. These findings point to markets having uncertainty regarding both the state of the economy and the reaction function of the bank.

Contact : Romain Houssa - romain.houssa@unamur.be
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