IMF Working Papers

Caught in the Crosswinds: The Experiences of Selected Economies Responding to External Volatility with Multiple Policy Levers

By Ghada Fayad, Helene Poirson

November 8, 2020

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Ghada Fayad, and Helene Poirson. Caught in the Crosswinds: The Experiences of Selected Economies Responding to External Volatility with Multiple Policy Levers, (USA: International Monetary Fund, 2020) accessed December 6, 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

A case study approach is used to assess the multi-pronged policy response of seven small financially open economies with flexible exchange rate regimes to external shocks following the global financial crisis. FX intervention was frequently used— including during outflow episodes to prevent disorderly depreciation and preserve financial stability. Monetary policy often considered both financial and external stability. Capital flow management measures were sometimes calibrated symmetrically over the cycle while macroprudential measures were mostly deployed during inflow episodes. Assessment of the macroeconomic conditions paints an inconclusive picture on the benefits or costs of such policies, suggesting the need for further analysis.

Subject: Central bank policy rate, Depreciation, Exchange rates, Financial sector policy and analysis, Financial sector stability, Financial services, Foreign exchange, Inflation, National accounts, Prices

Keywords: Africa, Capital flows, Central bank policy rate, Depreciation, Depreciation pressure, Emerging markets, Exchange rate volatility, Exchange rates, Financial sector stability, Foreign exchange intervention, FX turnover BIS data, Global, Inflation, Inflation expectation, Inflation targeting, Inflation targeting regime, Macroprudential measures, Macroprudential measures., Monetary and exchange rate policies, Monetary policy decision, Monetary policy independence, WP

Publication Details

  • Pages:

    22

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2020/225

  • Stock No:

    WPIEA2020225

  • ISBN:

    9781513560342

  • ISSN:

    1018-5941