Studies Conducted at World Bank on Investment Recently Reported (How Do Rising Us Interest Rates Affect Emerging and Developing Economies? It Depends): Investment

2025 DEC 05 (NewsRx) -- By a News Reporter-Staff News Editor at Economics Daily Report -- A new study on Investment is now available. According to news reporting originating from Washington, District of Columbia, by NewsRx correspondents, research stated, “This paper examines the implications of different types of interest rate shocks in the United States for emerging market and developing economies (EMDEs). We first classify changes in U.S. interest rates into those caused by changes in inflation expectations (‘inflation’ shocks), changes in perceptions of the Federal Reserve’s reaction function (‘reaction’ shocks), and changes in real activity (‘real’ shocks).”

Our news editors obtained a quote from the research from World Bank, “Our analysis attributes the sharp increases in U.S. interest rates since early 2022 mainly to inflation and, especially, reaction shocks. These types of shocks are associated with adverse effects: EMDE financial conditions tighten, consumption and investment fall, and governments cut spending to improve budget balances. By comparison, rising U.S. interest rates stemming from real shocks are not only associated with benign outcomes for EMDE financial conditions but also improvements in budget balances that reflect higher revenues as well as lower expenditures.”

According to the news editors, the research concluded: “Finally, this paper documents that rising U.S. interest rates driven by reaction shocks are especially likely to push EMDEs into a financial crisis.”

This research has been peer-reviewed.

For more information on this research see: How Do Rising Us Interest Rates Affect Emerging and Developing Economies? It Depends. Journal of Money, Credit and Banking, 2025. Journal of Money, Credit and Banking can be contacted at: Wiley, 111 River St, Hoboken 07030-5774, NJ, USA. (Wiley-Blackwell - http://www.wiley.com/; Journal of Money, Credit and Banking - http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1538-4616)

The news editors report that additional information may be obtained by contacting Carlos Arteta, World Bank, Prospects Grp, Washington, DC 20433, United States. Additional authors for this research include Steven Kamin and Franz U. Ruch.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1111/jmcb.70008. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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