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Should Emerging Economies Embrace Quantitative Easing during the Pandemic?

Author

Listed:
  • Gianluca Benigno
  • Jonathan S. Hartley
  • Alicia Garcia Herrero
  • Alessandro Rebucci
  • Elina Ribakova

Abstract

Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.

Suggested Citation

  • Gianluca Benigno & Jonathan S. Hartley & Alicia Garcia Herrero & Alessandro Rebucci & Elina Ribakova, 2020. "Should Emerging Economies Embrace Quantitative Easing during the Pandemic?," Liberty Street Economics 20201002, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:88824
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    More about this item

    Keywords

    emerging markets; quantitative easing; COVID-19;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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