Global financial cycle and monetary policy rules: a Neo-Kaleckian model for emerging markets and developing economies

Gabriel Michelena and Fernando Toledo

Chapter 5 in Monetary Policy Challenges in Latin America, 2023, pp 78-95 from Edward Elgar Publishing

Abstract: We analyze the bust Global Financial Cycle (GFCy) transmission to Emerging Markets and Developing Economies (EMDEs) through a Neo-Kaleckian model of growth, inflation, income distribution, and external debt. We calibrate and simulate the model to evaluate the effects of this phase of GFCy spread on income distribution, capacity utilization, and real exchange rates. We propose several monetary policy rules to examine how financial centers’ monetary spillovers could be mitigated during the bust GFCy stage. We find that external financial shocks conducted by GFCy to EMDEs could be magnified or dampened out, depending on the kind of monetary policy rules followed by EMDEs’ central banks.

Keywords: Development Studies; Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2023
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