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Crisis Mismanagement in The United States And Europe: Impact On Developing Countries And Longer-Term Consequences

  • Yýlmaz Akyüz

    (South Centre)

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    The ultra-easy monetary policy has not been very effective in easing the debt overhang and stimulating spending – hence, the crisis is taking too long to resolve, entailing unnecessary losses of income and jobs and aggravating inequality. But it has generated financial fragility at home and abroad, exposing developing countries to a new boom-bust cycle. Tapering does not yet signal a return to monetary tightening and normalization of the Fed’s balance sheet. Besides, the policy rates are pledged to remain at historical lows for some time to come. Thus, ultra-easy money is still with us. But the markets have already started pricing-in the normalization of monetary policy and this is the main reason for the rise in long-term rates and the turbulence in emerging economies. The crisis has in effect demolished the myth that South has decoupled from the economic vagaries of the North and major emerging economies have become new global engines. Policy response to a deepening of the current financial turbulence in the South should depart from past practices. Emerging economies should avoid using their reserves to finance large and persistent outflows of capital and seek, instead, to involve private lenders and investors in crisis resolution. This may call for exchange restrictions and temporary debt standstills.

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    File URL: http://www.tek.org.tr/dosyalar/AKYUZ-Crisis-Mismanagent-US-Europe.pdf
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    Paper provided by Turkish Economic Association in its series Working Papers with number 2014/3.

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    Length: 41 pages
    Date of creation: 2014
    Date of revision:
    Handle: RePEc:tek:wpaper:2014/3
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    1. Gros, Daniel, 2011. "External versus Domestic Debt in the Euro Crisis," CEPS Papers 5677, Centre for European Policy Studies.
    2. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
    3. Vasco Cúrdia & Andrea Ferrero, 2013. "How stimulatory are large-scale asset purchases?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug12.
    4. David Greenlaw & James D. Hamilton & Peter Hooper & Frederic S. Mishkin, 2013. "Crunch Time: Fiscal Crises and the Role of Monetary Policy," NBER Working Papers 19297, National Bureau of Economic Research, Inc.
    5. Baldursson, Fridrik Mar & Portes, Richard, 2013. "Capital controls and the resolution of failed cross-border banks: the case of Iceland," CEPR Discussion Papers 9706, C.E.P.R. Discussion Papers.
    6. Thomas Herndon & Michael Ash & Robert Pollin, 2013. "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff," Working Papers wp322, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. Thomas I. Palley, 2013. "Europe´s crisis without end: The consequences of neoliberalism run amok," IMK Working Paper 111-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    8. Paulo Drummond & Estelle X. Liu, 2013. "Africa’s Rising Exposure to China: How Large Are Spillovers Through Trade?," IMF Working Papers 13/250, International Monetary Fund.
    9. Ruben Atoyan & Jonathan F Manning & Jesmin Rahman, 2013. "Rebalancing: Evidence from Current Account Adjustment in Europe," IMF Working Papers 13/74, International Monetary Fund.
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