Real effects of monetary policy in large emerging economies

Abstract

This paper provides evidence on monetary policy transmission for five key emerging market economies: Brazil, Russia, India, China, and South Africa. Monetary policy (interest rate) shocks are identified using modern Bayesian methods along with the more recent sign restrictions approach. We find that contractionary monetary policy has a strong and negative effect on output. We also show that such contractionary monetary policy shocks do tend to stabilize inflation in these countries in the short term, while producing a strongly persistent negative effect on real equity prices. Overall, the impulse responses are robust to the alternative identification procedures.