Information Effects of Monetary Policy and Bond Yields in Emerging Markets  [PDF]

Abstract       This paper shows that interest rate surprises affect the term structure of interest rates in opposite ways across advanced and emerging economies. Using a novel high-frequency dataset of sovereign yield curves, I find that a surprise tightening lowers long-term nominal yields, term premia, and inflation expectations in advanced economies, but raises them in emerging markets. I show that these contrasting responses stem from stronger central bank information effects in interest rate surprises in emerging markets. To rationalize these findings, a model with asymmetric information in segmented bond markets is developed, where agents update their beliefs about the inflation outlook partly from policy surprises since their private information is noisy. The results highlight that monetary policy transmits not only through interest rates, but also through the beliefs it signals about the economy, emphasizing the value of central bank communication.

• Global Investors in Local-Currency Bond Markets: Implications for Bond Yields and Exchange Rates  [PDF]
  with Pierre De Leo, Lorena Keller, Mauricio Villamizar-Villegas and Tomás Williams
  
  

• Optimal Seigniorage: With and Without Foreign Exchange Controls  [PDF]

• Low Premiums, High Potential: Black Market Exchange Rates and Inflation

• Purchasing Power Parity in Argentina: Ninety Years of Controls and Parallel Exchange Rates