The FED's Monetary Policy Impact on Bric Countries

Abstract

The aim of this thesis is to study the impact of Fed’s monetary policy on Brazil, Russia, India and China. The global financial crisis of 2008 emphasized once more the importance of US on world economy. Since then this has been a much debated topic for many analysts and scholars around world. The impact of Federal Reserves’ decisions on developing countries has been widely studied by many scholars, but less has been studied on Brazil, Russia, India and China. Being the fastest and largest growing emerging markets in the world the impact of Federal Reserves’ monetary policy would be more prevalent in BRIC compared to other developing countries. To study this effect VAR models and impulse-response tests are employed. Variables which are being studied in this research are interest rate of US, interest rate of each country, consumer price index, purchasing power parity, import/export, exchange rate and stock market price for each country. Data used are monthly and correspond to the period from 2000 to 2015, retrieved from International Financial Statistics of International Monetary Fund and Yahoo Finance. Using VAR models eight simultaneous equations have been derived. The impact is studied separately for each country. Data are studied and divided into three sub-sections: 2000-2015 monthly; Crises Period, corresponding to monthly data from April 2007 until December 2008; and Crises free period, removing crises time period. The results show that Brazil is the country which is affected mostly by changes in interest rates of US and this effect is faster compared to other countries. This effect is valid for all sub-periods used in this study, from 2000-2015, crises free period and crisis period. Fed’s monetary policy resulted to have an impact on all countries in our study, regardless degree of significance and the variable influenced the most.