The increasing openness of financial markets due to the rapid speed of globalization has introduced new challenges and uncertainties for monetary policies worldwide. This study employs theoretical frameworks and empirical data to examine the dynamic relationship between uncertainty in monetary pol- icy and the degree of financial openness. The results indicate that financial openness significantly magnifies the uncertainty surrounding monetary policy. This, in turn, affects both the movement of capital and the expectations of the market. This study investigates the influence of financial openness on the accuracy and transparency of central banks’ policies, which subsequently impacts the stability of monetary policies. It does so by comparing cases from various nations. Policymakers can utilize the findings as a guide for formulating and adjusting monetary policies in a globalized economy to alleviate the dangers of economic instability caused by uncertainty.

Jiayi Liu. The Impact of Financial Openness on Monetary Policy Uncertainty: A Global Analysis. Academic Journal of Business & Management (2024) Vol. 6, Issue 9: 279-284. https://doi.org/10.25236/AJBM.2024.060938.

[1] M. D. Bauer, “Monetary policy and interest rate uncertainty,” FRBSF Economic Letter, 2012.

[2] D.-H. Kim, S.-C. Lin, and Y.-B. Suen, “Dynamic effects of financial openness on economic growth and macroeconomic uncertainty,” Emerging Markets Finance and Trade, vol. 48, no. 1, pp. 25–54, 2012.

[3] I. O. Olanipekun, G. Olasehinde-Williams et al., “Impact of economic policy uncertainty on exchange market pressure,” SAGE Open, 2019.

[4] W. Luo, Y. Wang, and X. Zhang, “Monetary policy uncertainty and firm risk-taking,” Pacific-Basin Finance Journal, vol. 72, p. 101634, 2022.

[5] J. Kearns and N. Patel, “Central bank transparency and the volatility of exchange rates,” Journal of Financial Stability, 2018.

[6] M. Fratzscher, “Capital flows, push versus pull factors and the global financial crisis,” Journal of International Economics, 2012.

[7] M. D. Bordo and A. T. Levin, Monetary policy transparency and economic performance. Princeton University Press, 2015.

[8] J. Aizenman, M. D. Chinn, and H. Ito, “Financial openness and monetary policy independence: Challenges for emerging market economies,” International Journal of Finance & Economics, 2013.

[9] M. Obstfeld, “Trilemmas and trade-offs: living with financial globalization,” Central Banking, Analysis, and Economic Policies Book Series, 2014.

[10] A. R. Ghosh, M. S. Qureshi, and J. I. Kim, “Managing capital inflows: What tools to use?” Journal of International Economics, 2014.

[11] H. Rey, “Dilemma not trilemma: The global financial cycle and monetary policy independence,” National Bureau of Economic Research, 2015.

[12] B. S. Bernanke, “The crisis and the policy response,” Stamp Lecture, London School of Economics, 2008.

[13] C. Hsiao et al., “The analysis of panel data and counterfactual frame- work,” Journal of Econometric Methods, vol. 1, no. 2, pp. 123–158, 2012.