Managing External Volatility: Policy Frameworks in Non-Reserve Issuing Economies

By Helene Poirson, Nathan Porter, Ghada Fayad, Itai Agur, Ran Bi, Jiaqian Chen, Johannes Eugster, Stefan Laseen, Jeta Menkulasi, Kenji Moriyama, Celine Rochon, Katsiaryna Svirydzenka, Camilo E Tovar Mora, Zhongxia Zhang, Aleksandra Zdzienicka

December 18, 2020

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Helene Poirson, Nathan Porter, Ghada Fayad, Itai Agur, Ran Bi, Jiaqian Chen, Johannes Eugster, Stefan Laseen, Jeta Menkulasi, Kenji Moriyama, Celine Rochon, Katsiaryna Svirydzenka, Camilo E Tovar Mora, Zhongxia Zhang, and Aleksandra Zdzienicka. Managing External Volatility: Policy Frameworks in Non-Reserve Issuing Economies, (USA: International Monetary Fund, 2020) accessed December 21, 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

Since the global financial crisis, non-reserve-issuing economies (NREs) have been highly sensitive to episodes of external pressures. With monetary policy independence constrained by this sensitivity, many NREs have utilized other policy instruments. This paper confirms the vulnerability of NREs to external shocks and finds that in some circumstances managing such shocks with multiple instruments can both lessen the policy response required from any one policy tool to financial and external shocks and increase the effectiveness of policies in stabilizing macro-financial conditions. Effectiveness however does not always imply appropriateness, which rests on an evaluation of potential trade-offs and unintended consequences.

Subject: Central bank policy rate, Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Financial services, Foreign exchange, Inflation, Prices

Keywords: B. monetary policy transmission, Capital flow management measures, Central bank policy rate, Demand shock, Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Foreign exchange intervention, Global, Inflation, Macroprudential policy, Monetary policy, Monetary policy independence, Monetary policy rate, Monetary policy reaction, Monetary policy response, Open economy, Policy rate change, Policy transmission and effectiveness, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/288
Stock No:

WPIEA2020288
ISBN:

9781513564562
ISSN:

1018-5941

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