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Credible Emerging Market Central Banks could embrace Quantitative Easing to fight COVID-19

Author

Listed:
  • Gianluca Benigno

    (Associate Professor in the Department of Economics at the London School of Economics)

  • Jon Hartley

    (MPP Candidate and researcher, Harvard Kennedy School)

  • Alicia García-Herrero

    (Senior Research Fellow, Bruegel)

  • Alessandro Rebucci

    (Associate Professor of Finance, Johns Hopkins Carey Business School, CEPR and NBER)

  • Elina Ribakova

    (Deputy Chief Economist, Institute of International Finance)

Abstract

Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimizing the risks of large depreciations and spiralling inflation.

Suggested Citation

  • Gianluca Benigno & Jon Hartley & Alicia García-Herrero & Alessandro Rebucci & Elina Ribakova, 2020. "Credible Emerging Market Central Banks could embrace Quantitative Easing to fight COVID-19," HKUST IEMS Working Paper Series 2020-75, HKUST Institute for Emerging Market Studies, revised Jun 2020.
    • Handle: RePEc:hku:wpaper:202075
    as

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    File URL: https://iems.ust.hk/assets/publications/working-papers-2020/iemswp2020-75.pdf
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    References listed on IDEAS

    as
    1. Alicia García-Herrero & Elina Ribakova, 2020. "COVID-19’s reality shock for external-funding dependent emerging economies," HKUST IEMS Working Paper Series 2020-73, HKUST Institute for Emerging Market Studies, revised May 2020.
    2. Dingel, Jonathan I. & Neiman, Brent, 2020. "How many jobs can be done at home?," Journal of Public Economics, Elsevier, vol. 189(C).
    3. Martina Jašová & Richhild Moessner & Elöd Takáts, 2019. "Exchange Rate Pass-Through: What Has Changed Since the Crisis?," International Journal of Central Banking, International Journal of Central Banking, vol. 15(3), pages 27-58, September.
    4. Alessandro Rebucci & Jonathan S. Hartley & Daniel Jiménez, 2022. "An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies," Advances in Econometrics, in: Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, volume 43, pages 291-322, Emerald Group Publishing Limited.
    5. Yavuz Arslan & Mathias Drehmann & Boris Hofmann, 2020. "Central bank bond purchases in emerging market economies," BIS Bulletins 20, Bank for International Settlements.
    6. Chang Woon Nam, 2020. "World Economic Outlook for 2020 and 2021," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(02), pages 58-59, July.
    7. World Bank, 2020. "Global Economic Prospects, June 2020," World Bank Publications - Books, The World Bank Group, number 33748, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Feyen, Erik & Alonso Gispert, Tatiana & Kliatskova, Tatsiana & Mare, Davide S., 2021. "Financial Sector Policy Response to COVID-19 in Emerging Markets and Developing Economies," Journal of Banking & Finance, Elsevier, vol. 133(C).
    2. Beirne, John & Sugandi, Eric, 2023. "Central bank asset purchase programs in emerging market economies," Finance Research Letters, Elsevier, vol. 54(C).
    3. Giraldo, Iader & Turner, Philip, 2022. "The Dollar Debt of Companies in Latin America: the warning signs," National Institute of Economic and Social Research (NIESR) Discussion Papers 534, National Institute of Economic and Social Research.
    4. Daniel DĂIANU & Alexie ALUPOAIEI & Matei KUBINSCHI, 2022. "Revisiting Limits and Pitfalls of QE in the Emerging Markets," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 5-25, April.

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    More about this item

    Keywords

    Coronavirus; COVID-19; Quantitative Easing; Emerging Markets; Fiscal Stimulus;
    All these keywords.

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