A Study Of The Impact Of US Dollar Interest Rate Hikes On Financial Markets In Emerging Economies

In December 2015,the Federal Reserve System had announced that it would raise the federal funds rate,starting with a new cyclical policy arrangement to raise interest rate.Given the position and role of USA and dollars in the world's economy,this monetary policy had an great influence on its own economy,and also it would have noticeable impact on the emerging economies in the channels of interest rates,exchange rates and asset prices.Therefore,many people pay much attention to this policy,and consider that what's the impact which the interest rates will bring to the emerging economies.So,based on the theory of spillover effects of macroeconomics monetary policy,this article will study on the influence that the federal raising interest rates policy will result in the financial markets of the emerging economies.This article selects the emerging economies E11 countries(including South Korea,China,India,Indonesia,Turkey,Russia,Saudi Arabia,South Africa,Argentina,Brazil and Mexico)as the representative of the emerging economies.Consider about the financial market indicators,this article chooses the market interest rate,exchange rate and stock market index as the main representative of the financial market variables.In addition,the actual gross domestic product(real GDP index),the consumer price index(CPI),and the crude oil price level being a global variable have been chosen.In order to analyze the relationship between these variables,this article introduces the Global Vector Auto-regression model(GVAR model),and focus on the analysis of impulse response figure that a standard deviation of the federal rates rising resulting in the relevant variables of the emerging economies' financial markets.By the analyses of impulse response figures,this passage got the following conclusions: first,the Federal rising interest rates had certain positive spillover effect on Chinese interest rate,but the influence is small.In addition,other countries' interest rates excluding Indonesia and Saudi Arabia,have positive spillover effects in the long term.The influence of interest rates on Turkey is positive,but Indonesia and Saudi interest rates show a negative spillover effect.Second,the dollar's rise has led to a rise in the US dollar and a smaller RMB depreciation.Most emerging economies show a relatively weak currency.The exchange rate of Rupiah,the South African rand and the Brazilian real suffered significant declines.The Argentine peso and the Mexican peso show a trend of appreciation in the effect of the Federal rising interest rate policy.Third,during the period of federal interest rates rising,there are nine countries' stock market indexes experience the falling trend,and the stock market index fluctuate violently in the short-term stock market.The Chinese stock market index suffer great falling.Stock market indexes in Russia and India have changed sharply.The negative spillover effect on the Saudi stock market,was the biggest and the stock market index tumbled.Fourth,the Federal interest rates policy has a spillover effect on the real GDP and CPI of the emerging economies.Impacts on different countries is not the same.China's real GDP and CPI suffer falling.The Federal rising interest rate also led to a drop in global crude prices.In view of the above conclusion,some Suggestions are put forward in this paper for the emerging economies: first of all,all countries should formulate domestic monetary policy flexibly according to their domestic situation.Regulate and control its interest rates reasonably in order to cope with the positive spillover effects to domestic interest rates because of the Federal rising interest rate policy.Second,the emerging countries should reasonably control the government' and enterprise' liability scale,in order to prevent the pressure for repayment resulting from foreign currency appreciation.These countries whose currency will appreciate can expand importing much strategic stockpile,and appropriately increase trade with other countries around the world.After that,China and other countries should strengthen their supervision over international capital flowing and improve their own financial market construction.Finally,emerging economies should pay attention to transformation and upgrading of industrial structure in heir own economic,focus on the construction of the financial market system,strengthen its own economic basis,and reduce our dependence on foreign capital and debt scale.