Monetary Policy in Emerging Markets: Taming the Cycle

By Donal McGettigan, Kenji Moriyama, Jean F Noah Ndela Ntsama, Francois Painchaud, Haonan Qu, Chad Steinberg

May 3, 2013

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Donal McGettigan, Kenji Moriyama, Jean F Noah Ndela Ntsama, Francois Painchaud, Haonan Qu, and Chad Steinberg. Monetary Policy in Emerging Markets: Taming the Cycle, (USA: International Monetary Fund, 2013) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes.

Subject: Exchange rate arrangements, Exchange rate flexibility, Financial services, Foreign exchange, Inflation, Output gap, Prices, Production, Real interest rates

Keywords: Countercyclical monetary policy, Countercyclical Policy, Emerging Markets, Exchange rate arrangements, Exchange rate flexibility, Global, Inflation, Inflation targeting, Inflation-targeting EM, IT regime, Monetary policy, Monetary policy cyclicality, Output gap, Policy, Real interest rates, Transmission mechanism, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/096
Stock No:

WPIEA2013096
ISBN:

9781484381847
ISSN:

1018-5941

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