IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/26361.html
   My bibliography  Save this paper

Macroeconomics Challenges and Resilience of Emerging Market Economies

Author

Listed:
  • Joshua Aizenman

Abstract

A Growing share of Emerging Markets (EMs) use hybrid versions of inflation targeting (IT) that differ from the IT regimes of OECD countries. Policy interest rates among commodity countries are impacted by real exchange rate and international reserves (IR) changes, aiming at stabilizing their real exchange rate in the presence of volatile terms of trade and heightened exposure to capital inflow/outflow shocks. IT works well with independent central banks; yet, fiscal dominance concerns may hinder the efficacy and independency of central banks. This suggests experimenting with the integration of monetary rules with fiscal rules, possibly linking these rules with the operations of buffers like IR and Sovereign Wealth Funds (SWFs). The Global Financial Crisis validated the benefits of counter-cyclical management of international reserves and SWFs in reducing the volatility of real exchange rates. Macro-prudential policies may complement or even substitute buffer policies by reducing a country’s balance sheet exposure to foreign currency debt, mitigating the risk of costly sudden-stops and capital flight. A growing share of EMs is exposed to new financial technologies (fintech), providing cheaper and faster financial services, deepening financial coverage to previously under-served populations. Deeper fintech diffusion may redirect financial intermediation from regulated banks to emerging fintech shadow banks, some of which may have global reach. These developments, and the diffusion of cryptocurrencies promising anonymized payment systems may hinder the effectiveness of monetary policy, and eventually induce greater financial instability. States may encourage the diffusion of efficient financial intermediation in ways that benefit users, while restricting the use of anonymized exchange and global monies to reduce the threat of a shrinking tax base, and to maintain financial stability.

Suggested Citation

  • Joshua Aizenman, 2019. "Macroeconomics Challenges and Resilience of Emerging Market Economies," NBER Working Papers 26361, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26361
    Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w26361.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:26361. 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: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.