Managing External Volatility: Policy Frameworks in Non-Reserve Issuing Economies

Hélène Poirson, Nathan Porter, Ghada Fayad, Itai Agur, Ran Bi, Jiaqian Chen, Johannes Eugster, Stefan Laséen (), Jeta Menkulasi, Kenji Moriyama, Celine Rochon, Katsiaryna Svirydzenka, Camilo Tovar (), Zhongxia Zhang and Aleksandra Zdzienicka

No 2020/288, IMF Working Papers from International Monetary Fund

Abstract: Since the global financial crisis, non-reserve-issuing economies (NREs) have been highly sensitive to episodes of external pressures. With monetary policy independence constrained by this sensitivity, many NREs have utilized other policy instruments. This paper confirms the vulnerability of NREs to external shocks and finds that in some circumstances managing such shocks with multiple instruments can both lessen the policy response required from any one policy tool to financial and external shocks and increase the effectiveness of policies in stabilizing macro-financial conditions. Effectiveness however does not always imply appropriateness, which rests on an evaluation of potential trade-offs and unintended consequences.

Keywords: Monetary policy; foreign exchange intervention; policy transmission and effectiveness; macroprudential policy; capital flow management measures; WP; Policy rate change; monetary policy response; B. monetary policy transmission; open economy; demand shock; monetary policy reaction; monetary policy rate; monetary policy independence; Central bank policy rate; Exchange rates; Inflation; Exchange rate flexibility; Exchange rate arrangements; Global (search for similar items in EconPapers)
Pages: 42
Date: 2020-12-18
New Economics Papers: this item is included in nep-cba and nep-mon
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Journal Article: Managing External Volatility: Policy Frameworks in Non-Reserve-Issuing Economies (2022)
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