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Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies

2021-08-06 Business & Economics
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Release : 2021-08-06
Genre : Business & Economics
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Book Rating : 741/5 ( reviews)

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Book Synopsis Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies by : Juan Yepez

Download or read book Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies written by Juan Yepez. This book was released on 2021-08-06. Available in PDF, EPUB and Kindle. Book excerpt: Dutch disease is often referred as a situation in which large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency. This paper documents that this syndrome has been witnessed by many emerging markets and developing economies (EMDEs) as a result of surges in capital inflows driven by accommodative U. S. monetary policy. In a sample of 25 EMDEs from 2000-17, U. S. monetary policy shocks coincided with episodes of currency appreciation and a contraction in tradable output in these economies. The paper also shows empirically that the use of capital flow measures (CFMs) has been a common policy response in several EMDEs to U.S. monetary policy shocks. Against this background, the paper presents a two sector small open economy augmented with a learning-by-doing (LBD) mechanism in the tradable sector to rationalize these empirical findings. A welfare analysis provides a rationale for the use of CFMs as a second-best policy when agents do not internalize the LBD externality of costly resource misallocation as a result of greater capital inflows. However, the adequate calibration of CFMs and the quantification of the LBD externality represent important implementation challenges.

U.S. Monetary Policy Shocks and Their Impacts on International Capital Flows

2017
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Release : 2017
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Book Rating : 357/5 ( reviews)

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Book Synopsis U.S. Monetary Policy Shocks and Their Impacts on International Capital Flows by : Taeree Wang

Download or read book U.S. Monetary Policy Shocks and Their Impacts on International Capital Flows written by Taeree Wang. This book was released on 2017. Available in PDF, EPUB and Kindle. Book excerpt: During the 2008 global financial crisis, several emerging market economy (EME) authorities argued that advanced economy policies including large-scale asset purchases by the U.S. Federal Reserve were primary sources of excessive capital flows and created adverse spillover effects to the EMEs. More recently, EME policy makers have been concerned about the adverse effects of advanced economy monetary policy normalization. Tracking the link between the monetary policy shocks in advanced countries and capital flows to emerging markets can be crucial for informing the debate about appropriate policy responses to capital inflows by the EMEs.

Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets

2014
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Release : 2014
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Book Synopsis Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets by : Andreas Hoffmann

Download or read book Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets written by Andreas Hoffmann. This book was released on 2014. Available in PDF, EPUB and Kindle. Book excerpt: Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises' law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows.

Global Waves of Debt

2021-03-03 Business & Economics
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Release : 2021-03-03
Genre : Business & Economics
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Book Rating : 453/5 ( reviews)

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Book Synopsis Global Waves of Debt by : M. Ayhan Kose

Download or read book Global Waves of Debt written by M. Ayhan Kose. This book was released on 2021-03-03. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

The Impact of U.S. Monetary Policy on Capital Flows to Emerging Market Economies

2022
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Release : 2022
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Book Synopsis The Impact of U.S. Monetary Policy on Capital Flows to Emerging Market Economies by : Katia Rocha

Download or read book The Impact of U.S. Monetary Policy on Capital Flows to Emerging Market Economies written by Katia Rocha. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the potential impact of US monetary policy normalization on portfolio capital flows to Emerging Markets Economies (EME) explicitly taking into account the unconventional US monetary policy. We build an econometric model of the drivers of capital flows to EMEs and the results suggest that Brazil maybe less vulnerable than EMEs to changes in US monetary policy.

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