Is Credit Easing Viable in Emerging and Developing Economies? An Empirical Approach

By Luis Ignacio Jácome, Tahsin Saadi Sedik, Alexander Ziegenbein

March 8, 2018

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Luis Ignacio Jácome, Tahsin Saadi Sedik, and Alexander Ziegenbein. Is Credit Easing Viable in Emerging and Developing Economies? An Empirical Approach, (USA: International Monetary Fund, 2018) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

During the global financial crisis, many central banks in advanced economies engaged in credit easing. These policies have been perceived as largely successful in reducing stress in financial markets, thus avoiding larger output losses. In this paper, we study empirically whether credit easing is also a viable policy tool to cope with banking crises in emerging and developing economies. We find that credit easing leads to a sharp increase in domestic currency depreciation, high inflation, and a substantial reduction in economic growth in a large panel of emerging and developing economies. For advanced economies, we find the effects to be benign. Our results suggest that emerging and developing economies should be cautious when using credit easing as it may fuel adverse macroeconomic repercussions.

Subject: Banking crises, Exchange rate adjustments, Financial crises, Foreign exchange, Inflation, Monetary expansion, Monetary policy, Prices, Systemic crises

Keywords: Banking crises, Central bank, Credit easing, Currency crises, Currency depreciation, Developing economy, Effects of credit easing, Exchange rate adjustments, Financial stability, Global, Inflation, Inflation expectation, Liquidity provision, Macroeconomic stability, Monetary expansion, Nominal exchange rate, Nominal exchange rate depreciation, Systemic crises, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/043
Stock No:

WPIEA2018043
ISBN:

9781484345160
ISSN:

1018-5941

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