The Transmission of Unconventional Monetary Policy to the Emerging Markets - An Overview

24 Pages Posted: 7 Oct 2014

See all articles by Madhusudan S. Mohanty

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: August 2014

Abstract

Highly accommodative monetary policies in the major advanced economies and the questions bout the exit from such policies have created major challenges for policymakers in emerging market economies (EMEs). Quite a few of EMEs that experienced rapid capital inflows and strong currency appreciation pressures during 2010-12 saw a sharp reversal in episodes of market volatility from May 2013 to February 2014.

This meeting of Deputy Governors focused on three main questions: (i) How can external monetary conditions become a source of risks to monetary and financial stability in EMEs? (ii) How should central banks respond to such shocks? (iii) And, can there be a greater international role for emerging market currencies? A key conclusion from the discussion is that asset prices and interest rates have become more correlated globally during the period of unprecedented monetary easing by advanced economies. One major worry was the risk of an abrupt reversal of capital inflows to EMEs. Central banks face difficult policy dilemmas in preserving financial stability while pursuing their monetary policy goals. It is hard for EME monetary authorities to counter a prolonged period of very low long-term interest rates and increased risk-taking in global financial markets.

Full publication: The Transmission of Unconventional Monetary Policy to the Emerging Markets

Keywords: Monetary policy, international spillover, emerging market economies, capital flows, exchange rate, long term interest rates

JEL Classification: E52, F31, F42, G12, G1

Suggested Citation

Mohanty, Madhusudan S., The Transmission of Unconventional Monetary Policy to the Emerging Markets - An Overview (August 2014). BIS Paper No. 78a, Available at SSRN: https://ssrn.com/abstract=2498126

Madhusudan S. Mohanty (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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