Advanced Search
MyIDEAS: Login

Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets

Contents:

Author Info

  • Andreas Hoffmann

    ()

Registered author(s):

    Abstract

    Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.icer.it/docs/wp2014/ICERwp02-14.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 02-2014.

    as in new window
    Length: 37 pages
    Date of creation: Feb 2014
    Date of revision:
    Handle: RePEc:icr:wpicer:02-2014

    Contact details of provider:
    Postal: Viale Settimio Severo, 63 - 10133 Torino - Italy
    Phone: +39 011 6604828
    Fax: +39 011 6600082
    Email:
    Web page: http://www.icer.it
    More information through EDIRC

    Related research

    Keywords: Monetary Policy; Emerging Markets; Financial Repression;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2010. "Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons," NBER Working Papers 16567, National Bureau of Economic Research, Inc.
    2. Benn Steil, 2007. "Monetary Sovereignty as Globalization's Achilles' Heel," Cato Journal, Cato Journal, Cato Institute, vol. 27(2), Spring/Su.
    3. David Laidler, 2003. "The price level, relative prices and economic stability: aspects of the interwar debate," BIS Working Papers 136, Bank for International Settlements.
    4. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan Standard," Working Papers 88, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Ronald McKinnon, 2010. "Rehabilitating the unloved dollar standard," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 1-18, November.
    6. Kose, M. Ayhan & Otrok, Christopher M. & Prasad, Eswar S., 2008. "Global business cycles: convergence or decoupling?," Discussion Paper Series 1: Economic Studies 2008,17, Deutsche Bundesbank, Research Centre.
    7. Roger W. Garrison, 2004. "Overconsumption and Forced Saving in the Mises-Hayek Theory of the Business Cycle," History of Political Economy, Duke University Press, vol. 36(2), pages 323-349, Summer.
    8. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, 09.
    9. Carmen M. & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," Working Paper Series WP11-10, Peterson Institute for International Economics.
    10. Andreas Hoffmann & Gunther Schnabl, 2011. "A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View," The World Economy, Wiley Blackwell, vol. 34(3), pages 382-403, 03.
    11. Thomas Laubach & John C. Williams, 2003. "Measuring the Natural Rate of Interest," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1063-1070, November.
    12. Reinhart, Carmen M & Reinhart, Vincent R, 1999. "On the Use of Reserve Requirements in Dealing with Capital Flow Problems," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 27-54, January.
    13. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
    14. Keeler, James P, 2001. " Empirical Evidence on the Austrian Business Cycle Theory," The Review of Austrian Economics, Springer, vol. 14(4), pages 331-51, December.
    15. Hoffmann, Andreas, 2009. "An Overinvestment Cycle in Central and Eastern Europe?," MPRA Paper 15668, University Library of Munich, Germany.
    16. Michael D. Bordo & Christopher M. Meissner, 2012. "Does Inequality Lead to a Financial Crisis?," NBER Working Papers 17896, National Bureau of Economic Research, Inc.
    17. Richard Portes, 2012. "Monetary Policies and Exchange Rates at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 157-163, 02.
    18. Alejandro Jara & Ramon Moreno & Camilo E Tovar, 2009. "The global crisis and Latin America: financial impact and policy responses," BIS Quarterly Review, Bank for International Settlements, June.
    19. Axel Leijonhufvud, 2009. "Out of the corridor: Keynes and the crisis," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 741-757, July.
    20. William R. White, 2006. "Is price stability enough?," BIS Working Papers 205, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. William R. White, 2012. "Ultra easy monetary policy and the law of unintended consequences," Globalization and Monetary Policy Institute Working Paper 126, Federal Reserve Bank of Dallas.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:icr:wpicer:02-2014. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alessandra Calosso).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.