Should Emerging Economies Embrace Quantitative Easing during the Pandemic?

Gianluca Benigno, Jonathan S. Hartley (), Alicia Garcia Herrero, Alessandro Rebucci () and Elina Ribakova

No 20201002, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.

Keywords: emerging markets; quantitative easing; COVID-19 (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2020-10-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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