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Sailing Out of Crisis Emerging Markets Style

Willi Semmler and Aleksandr Gevorkyan

A chapter in The Impact of the Global Financial Crisis on Emerging Financial Markets, 2011, pp 155-195 from Emerald Group Publishing Limited

Abstract: Emerging markets are said to have sustained relatively well in the recent global crisis. There are several factors that help explain this popular view, such as, for example, perceived separation from key international financial centres. Still a lot is to be digested in the crisis aftermath with immediate implications for financial markets and real economy. This chapter offers a unique insight into dynamics within transition economies via an extended blended fiscal–monetary policy rules model with possibility of foreign reserves targeting and foreign currency-denominated debt dynamics. Calibration is based on actual data and is done under various targets and financial risk conditions. Prudent monetary policy and fiscal policy initiatives within current context drive the choice of targets. That may help dampen negative impacts of the crisis and thwart potential currency run. This chapter advances three possible post-crisis scenarios, each with unique solution for reserves, exchange rate, sustainable debt and output levels. Categorizing between net exporters and net importers based on countries' external positions, group-specific results are derived. While both groups are susceptible to exchange-rate risk affected by a multitude of shocks due to their fragile financial system, net importers risk high inflation, but net exporters over-borrowing. This chapter contributes to the literature on global financial crisis, macroeconomic policy, and role of nominal targets and foreign reserves in emerging markets.

Keywords: International finance; global crisis; foreign reserves; macroeconomic policy; foreign currency-denominated debt; emerging markets (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1108/S1569-3759(2011)0000093007

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