Accessible Version
How Resilient Were Emerging Market Economies Through the 2022-23 U.S. Monetary Tightening Cycle? Accessible Data
Figure 1. Federal Funds Rate and Its Expectations during 2022-23 U.S. Tightening
This figure is comprised of two line charts. The chart on the left shows the federal funds rate as a black line. The y-axis is the percent between 0 and 9. The x-axis labels are years between 1990 and May 2026. The federal funds rate is volatile across this period.
The chart on the right shows the federal funds rate expectations for December 2020, December 2021, March 2022, June 2022, September 2022, December 2022, March 2023, June 2023, September 2023, and December 2023. The y-axis is the percent between 0 and 6. The x-axis labels are years between 2021 and 2027. The lines for December 2021 onwards show a similar pattern with the federal funds rate spiking between 2023 and 2024, then slowly declining through 2027. The December 2020 line shows a slight increase from zero through 2026.
Note: The right panel shows market expectations of the future path of the fed funds rate implied by overnight interest swaps at each of the months indicated in the legend.
Source: Fed funds rate in the left panel from Haver Analytics. Fed funds rate expectations in the right panel based on overnight interest swaps data from Bloomberg.
Figure 2. Model-Predicted Effects on EME GDP of 2022-23 U.S. Tightening
The figure shows two line graphs. They show the percent deviation of GDP for less-vulnerable (left chart) and more-vulnerable (right chart) EME countries from 2022 to 2025. Each chart has three lines which show the model predicted effects to three different tightening policies. The thinner blue solid line shows the GDP response to pure growth-driven tightening. The thicker red solid line shows the GDP response to pure monetary-driven tightening. The green dashed line shows the GDP response to both growth and monetary driven tightening. In both graphs the lines appear in the order thinner blue, dashed green and then thicker red with a gray band in between the blue and red lines. The green dashed line is always between the other two lines. In the less-vulnerable chart, the thinner blue line is around 0 to 1, the dashed green line is around -0.5 to 0 and the thicker red line goes from -2.5 to 0 with a dip at around 2023 Q3 to Q4. In the more-vulnerable chart, the thinner blue line is around -1.5 to 0, the dashed green line is from -4.5 to 0, and the thicker red line is from -6.7 to 0. All the lines in this chart dip either around 2023Q3 or 2023Q4.
Note: The lines show the model-predicted effects on EME GDP of the 2022-23 U.S. tightening when the tightening is assumed to be purely monetary-driven (red solid), purely growth-driven (blue sold), and driven by the combination of growth and monetary shocks suggested by U.S. policy rate and U.S. growth expectations (green dashed).
Source: Authors’ calculations of deviations from baseline using their model.
Figure 3. U.S. Real GDP Expectations During the 2022-23 U.S. Tightening
This chart shows lines of U.S. real GDP expectations for December 2021, March 2022, June 2022, September 2022, December 2022, March 2023, June 2023, September 2023, and December 2023. The data is an index relative to 2021Q4 as base and goes from 2021Q4 to 2023Q4. All the lines trend upwards from 100 to ending around 101 to 106. The lines for December 21 (black solid medium line) and March 2022 (thin red dotted line) have the highest expectations, while the other lines have more muted expectations.
Note: Forecast of level of U.S. real GDP at each of the months indicated in the legend.
Source: Blue Chip Economic Indicators.
Figure 4. EME Spreads and Exchange Rates, Data, and Model Predictions
This figure is a 2 by 2 where each panel is a line chart. The two charts at the top show less-vulnerable (left chart) and more-vulnerable (right chart) EME corporate borrowing spreads. The upper charts are in basis points from 100 to 450. The bottom panels show less-vulnerable (left chart) and more-vulnerable (right chart) EME nominal exchange rate in percent difference from 2021Q4 from -20 to 25. All panels are over the period 2019 to 2024 Q1. Each chart has four lines where the medium black solid line is the data line, the thinner blue solid line is for growth-driven tightening, the thicker red solid line for monetary-driven tightening and green dashed line is for growth and monetary shock combination. The green dashed line is between the red and blue line and show to expected path of the black line if it was subject to those shocks. The red line is above the blue line in all of the charts.
The less-vulnerable EME corporate borrowing spreads ends around 100 for the data and the model lines with the shocks range from 120 to 160. The more-vulnerable EME corporate borrowing spreads ends around 175 for the data and the model lines with the shocks range from 175 to 220. The less-vulnerable EME nominal exchange rate has the data end around 11, while the model lines with the shocks range from 3 to 11. Finally, the more vulnerable EME nominal exchange rate data line ends around 6, while the model lines with the shocks range from 2 to 14.
Note: The black solid lines show the data. The colored lines show model simulations when the tightening is assumed to be purely monetary-driven (solid red), purely growth-driven (blue solid), and driven by the combination of growth and monetary shocks suggested by U.S. policy rate and U.S. growth expectations (dashed green). Corporate borrowing spreads are 5-year BBB corporate bond spreads issued by corporations in Asian EMEs proxying for less vulnerable EMEs (left) and by corporations in Latin American EMEs, proxying for more vulnerable EMEs. For exchange rates, less vulnerable EMEs comprise of China, Indonesia, Israel, Malaysia, South Korea, Taiwan, Thailand and Vietnam and more vulnerable EMEs comprise of Argentina, Brazil, Chile, Colombia, India, Mexico, the Philippines, and Russia. The groups are aggregated using GDP PPP weights from Penn Tables.
Source: Corporate borrowing spreads are from ICE Fixed Income Indices, a product of ICE Data Indices, LLC (ICE Data) and is used with permission. ICE® is a registered trademark of ICE Data or its affiliates. Nominal exchange rates are from Federal Reserve, Statistical Releases H.10, Foreign Exchange Rates and Bloomberg.
Figure 5. EME Real GDP, Data and Model
The figure has two line charts. The left chart is less-vulnerable EME GDP, and the right chart is more-vulnerable EME GDP. Both show EME GDP with 2021Q4 as the base year from 2021 to 2023. The y-axis ranges from 93 to 113 Both figures have 5 lines: the black medium solid line is the data, the black dotted and dashed line is the 2021Q4 forecast, the thinner blue line is growth-driven tightening, the thicker red line is monetary driven tightening and the green dashed line is growth and monetary shock combination. The lines in both follow the same path. In the less-vulnerable EME GDP chart both the 2021Q4 forecast line and the growth and monetary shock combination are within the blue and red line and all the lines trend upwards consistently. In the more-vulnerable EME GDP chart all the lines trend upwards as well, but the black dashed line this time continues straight to 110 like the less-vulnerable EME GDP chart, but the red line and green dashed line start to slowly trough and exhibit less growth from 2022 to 2024.
Note: EME GDP data (black solid) and financial analysts’ forecasts as of 2021:Q4 (black dashed-dotted line). Colored lines show the model simulations when the tightening is assumed to be purely monetary-driven (red solid), purely growth-driven (blue solid), and driven by the combination of growth and monetary shocks suggested by U.S. policy rate and U.S. growth forecasts. Less vulnerable and more vulnerable EMEs comprised of the same countries as for exchange rates ain Figure 4.
Source: Authors’ calculations based on real GDP data from IMF’s World Economic Outlook database and financial analysts’ forecasts from Blue Chip Economic Indicators, aggregated using the Penn Tables PPP GDP weights “Expenditure-Side real GDP at chained PPPs (in millions of 2021 U.S. dollars).”