Is Credit Easing Viable in Emerging and Developing Economies? An Empirical Approach

Luis Jácome, Tahsin Saadi Sedik () and Alexander Ziegenbein

No 2018/043, IMF Working Papers from International Monetary Fund

Abstract: During the global financial crisis, many central banks in advanced economies engaged in credit easing. These policies have been perceived as largely successful in reducing stress in financial markets, thus avoiding larger output losses. In this paper, we study empirically whether credit easing is also a viable policy tool to cope with banking crises in emerging and developing economies. We find that credit easing leads to a sharp increase in domestic currency depreciation, high inflation, and a substantial reduction in economic growth in a large panel of emerging and developing economies. For advanced economies, we find the effects to be benign. Our results suggest that emerging and developing economies should be cautious when using credit easing as it may fuel adverse macroeconomic repercussions.

Keywords: WP; central bank; nominal exchange rate; Banking crises; credit easing; currency crises; financial stability; macroeconomic stability; effects of credit easing; nominal exchange rate depreciation; currency depreciation; developing economy; inflation expectation; liquidity provision; Monetary expansion; Systemic crises; Inflation; Exchange rate adjustments; Global (search for similar items in EconPapers)
Pages: 42
Date: 2018-03-08
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Citations: View citations in EconPapers (1)

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