Fiscal policy, public debt and monetary policy in emerging market economies

Bank for International Settlements

No 67 in BIS Papers from Bank for International Settlements

Abstract: During the 1980s and 1990s, the vulnerability of EMEs was often exacerbated by high fiscal deficits, underdeveloped domestic bond markets, and large currency or maturity mismatches. In many cases, these weaknesses constrained fiscal and monetary policy choices, and responses were often procyclical. Since the beginning of 2000s, however, the policy setting has much improved. Fiscal deficits and public debt levels have declined, domestic financing has increased, and the share of foreign currency debt has fallen. What do these developments mean for monetary policy? Has the threat of fiscal dominance in EMEs lessened, just when it has grown in the advanced economies? Have EMEs been able to use fiscal and monetary policy in more countercyclical way than in the past? These questions were the focus of the 17th Annual Meeting of Deputy Governors from major EMEs held at the BIS in Basel on 16-17 February 2012. The meeting addressed three issues: (i) the fiscal constraints on monetary policy; (ii) the impact of local currency bond markets on central bank policies; and (iii) the role of central banks in public debt management. This BIS Paper volume brings together the papers prepared by the BIS staff for the meeting as well as the contributions of central banks. One major finding was that improved fiscal positions have allowed many EMEs to use countercyclical fiscal and monetary policies to stabilise their economies during the recent global financial crisis. Anchoring medium term fiscal expectations was crucial, so was greater access to domestic financing enabled by the development of the local currency bond markets. Yet these reassuring conclusions came with a number of caveats. Although fiscal dominance has fallen, contingent liabilities and the costs of ageing populations pose serious medium- to long-term risks to many EMEs. And, while government debt levels have moderated, the volume of securities issued by central banks has expanded, reflecting large-scale interventions in the foreign exchange market. The implications of these balance sheet developments for price and financial stability require careful monitoring.

Date: 2012 Written 2012-10
ISBN: 92-9131-152-9
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Chapters in this book:

Fiscal policy, public debt and monetary policy in EMEs: anoverview , pp 1-9

Madhusudan Mohanty

Is monetary policy constrained by fiscal policy? , pp 11-30

Carlos Montoro, Elod Takats and James Yetman

Developments of domestic government bond markets in EMEs and their implications , pp 31-50

Aaron Mehrotra, Ken Miyajima and Agustin Villar

Central bank and government debt management: issues for monetary policy , pp 51-71

Andrew Filardo, Madhusudan Mohanty and Ramon Moreno

Fiscal policy, public debt management and government bond markets: issues for central banks , pp 73-89

Miguel angel Pesce

Fiscal consolidation and macroeconomic challenges in Brazil , pp 91-102

Carlos Hamilton Araujo, Cyntia Azevedo and Silvio Costa

Macro policies and public debt in Chile , pp 103-112

Sebastian Claro and Claudio Soto

Monetary policy, fiscal policy and public debt management , pp 113-117

People's Bank of China

Macroeconomic effects of structural fiscal policy changes in Colombia , pp 119-160

Hernando Vargas-Herrera, Andres Gonzalez and Ignacio Lozano-Espitia

Some insights into monetary and fiscal policy interactions in the Czech Republic , pp 161-171

Vladimír Tomšík

The importance of fiscal prudence under the Linked Exchange Rate System in Hong Kong SAR , pp 173-177

Hong Kong Monetary Authority

The impact of public debt on foreign exchange reserves and central bank profitability: the case of Hungary , pp 179-191

Gergely Baksay, Ferenc Karvalits and Zsolt Kuti

Sovereign debt management in India: interaction with monetary policy , pp 193-198

R Gandhi

Fiscal policy, public debt management and government bond markets in Indonesia , pp 199-203

Mr Hendar

The interaction between monetary and fiscal policy: insights from two business cycles in Israel , pp 205-215

Kobi Braude and Karnit Flug

Public debt and monetary policy in Korea , pp 217-232

Dr Geum Wha Oh

Banco de México and recent developments in domestic public debt markets , pp 233-252

José Sidaoui, Julio Santaella and Javier Pérez

Fiscal policy considerations in the design of monetary policy in Peru , pp 253-267

Renzo Rossini, Zenon Quispe and Jorge Loyola

Fiscal policy, public debt management and government bond markets: the case for the Philippines , pp 269-283

Diwa C Guinigundo

A framework for fiscal vulnerability assessment and its application to Poland , pp 285-294

Tomasz Jedrzejowicz and Witold Kozinski

Fiscal policy, public debt management and government bond markets: issues for central banks , pp 295-300

Elizaveta Danilova

Aspects of fiscal/debt management and monetary policy interaction: the recent experience of Saudi Arabia , pp 301-307

Abdulrahman Al-Hamidy

Development of the government bond market and public debt management in Singapore , pp 309-313

Monetary Authority of Singapore

Fiscal policy, public debt management and government bond markets: issues for central banks , pp 315-323

Lesetja Kganyago

Fiscal policy and its implication for central banks , pp 325-333

Suchada Kirakul

Globalisation of the interaction between fiscal and monetary policy , pp 335-350

Mehmet Yorukoglu and Mustafa Kilinc

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