Chalongphob Sussangkarn: This paper focuses on how different capital control and exchange rate regimes in emerging markets affect the transmission of shocks from advanced economies, specifically, U.S. monetary policy shocks. This is obviously an important policy issue as current monetary policy tightening of the U.S. Federal Reserve is posing challenges for the policy stance of emerging market economies (EMEs). VAR estimations and a new Keynesian DSGE model are used in the analyses.
For each policy regime (capital control and exchange rate), the paper uses a cardinal measure of the regime, based on various classifications from past studies, then separates economies by whether the measure for the economy is above or below the average for the included economies. For exchange rate regime, if the measure is below the average (2.55) the economy is considered a “pegger” and those above average are considered “floaters.” For capital control regime, Schindler's measure is used....