Essay about The Real Interest Rate Of U.s. And Emerging Economies

811 Words Jan 21st, 2015 4 Pages
Topic: The real interest rate of U.S. and emerging economies
Group members: Ashmita Gautam and Alina Ojha
College: Christ University, Bangalore

Different external factors are responsible for bringing unpredictable changes in economy. Such factors may have an impact on endogenous economic variables. As shown by the estimated structural VAR’s(Value at risk), the macroeconomic fluctuation in emerging markets are often caused by these external shocks. Thus, this paper attempts to unravel the complex relation connecting the real interest rate of US and its possible impact on emerging market fundamentals.

We know that, the monetary policy of US plays an important role in the determination of interest rates and the exchange rate in a typical emerging market. After the low performance of U.S in 2013, the fed is taking measures to increase the interest rate through quantitative easing in order to bring more investors in the economy. The price level and output of emerging economies react quickly and strongly to U.S. monetary policy shocks. This response is much more impactful than the price level and real output in the U.S. itself.

“While the U.S. sneezes, emerging markets catch a cold”, is coherent with our findings. We have used both theoretical and empirical elements in our paper with an aim of providing all the possible conclusions that can be drawn after analyzing the relationship between the real interest rate of U.S and emerging economies.

Our major findings of the…

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