Emerging Market Resilience: Good Luck or Good Policies?

Marijn Bolhuis, Francesco Grigoli, Marcin Kolasa, Roland Meeks, Andrea Presbitero and Zhao Zhang

No 20857, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Emerging markets have shown remarkable resilience during risk-off episodes in recent years. While favorable external conditions — good luck — contributed to this resilience, improvements in policy frameworks — good policies — played a critical role in bolstering the capacity of emerging markets to withstand the adverse consequences of these events. Improvements in monetary policy implementation and credibility have reduced reliance on foreign exchange (FX) interventions and capital flow management measures, and stricter macroprudential regulation also contributed to less FX interventions. Also, central banks have become less sensitive to fiscal interference and hold sway over domestic borrowing conditions. Looking ahead, countries with robust frameworks face easier policy trade-offs and are better positioned to navigate risk-off episodes. In contrast, economies with weaker frameworks risk de-anchoring inflation expectations and larger output losses if monetary tightening is delayed, especially when persistent price pressures emerge. In these settings, FX interventions offer only temporary relief and are less necessary when policy frameworks are sound.

Keywords: Emerging markets; Monetary policy; Risk-off shocks (search for similar items in EconPapers)
JEL-codes: F14 F60 I18 (search for similar items in EconPapers)
Date: 2025-11
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