Monetary Policy in Emerging Markets: Taming the Cycle

 
Author/Editor: McGettigan, Donal ; Moriyama, Kenji ; Noah Ndela Ntsama, Jean ; Painchaud, Francois ; Qu, Haonan ; Steinberg, Chad
 
Publication Date: May 03, 2013
 
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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.
 
Series: Working Paper No. 13/96
Subject(s): Monetary policy | Emerging markets | Chile | Inflation targeting | Business cycles

 
English
Publication Date: May 03, 2013
ISBN/ISSN: 9781484381847/2227-8885 Format: Paper
Stock No: WPIEA2013096 Pages: 30
Price:
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