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Monetary policies of industrial countries, emerging market credit cycles and feedback effects

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  • Hoffmann, Andreas
  • Schnabl, Gunther

Abstract

Merging recent empirical findings into an overinvestment framework this paper describes a recursive process of monetary policy interactions between industrialised and emerging market economies that provides an explanation of what may have led to the current global low interest rate environment. Based on the overinvestment framework we show that in the prevailing asymmetric world monetary system, monetary policies of industrialised countries can fuel credit booms in emerging markets. We argue that the absorption of inflationary pressure by emerging markets during boom periods and the fear of feedback effects of crises in emerging markets encourage delayed monetary tightening in industrialised countries.

Suggested Citation

  • Hoffmann, Andreas & Schnabl, Gunther, 2016. "Monetary policies of industrial countries, emerging market credit cycles and feedback effects," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 855-873.
  • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:5:p:855-873
    DOI: 10.1016/j.jpolmod.2016.08.002
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    Cited by:

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    2. Latsos Sophia, 2018. "Real Wage Effects of Japan’s Monetary Policy," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 69(1), pages 177-215, July.
    3. Siklos, Pierre L., 2018. "Boom-and-bust cycles in emerging markets: How important is the exchange rate?," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 172-187.
    4. Velimir Bole & Miha Dominko & Ada Guštin Habuš & Janez Prašnikar, 2019. "Countries Of Former Yugoslavia: Periphery Vs. Super-Periphery In The Great Recession And Beyond," Economic Annals, Faculty of Economics, University of Belgrade, vol. 64(223), pages 11-38, October –.

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    More about this item

    Keywords

    Asymmetric world monetary system; Credit cycles; Monetary policy; Financial crisis; Contagion;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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