Emerging markets with the weakest financial metrics, especially those with high inflation, tend to be the worst affected by U.S. interest-rate shocks, according to a study by Federal Reserve Board economists.
“Both the bright and the dark side of foreign responses to U.S. interest rate increases” are highlighted by the discussion paper, wrote the authors, Matteo Iacoviello and Gaston Navarro. “On the dark side, these responses seem to be large, to the point that they suggest that foreign economies -- especially vulnerable, emerging economies -- may react to U.S. monetary shocks more so than the U.S. economy itself.”
