Caught in the Crosswinds: The Experiences of Selected Economies Responding to External Volatility with Multiple Policy Levers

Ghada Fayad and Hélène Poirson

No 2020/225, IMF Working Papers from International Monetary Fund

Abstract: A case study approach is used to assess the multi-pronged policy response of seven small financially open economies with flexible exchange rate regimes to external shocks following the global financial crisis. FX intervention was frequently used— including during outflow episodes to prevent disorderly depreciation and preserve financial stability. Monetary policy often considered both financial and external stability. Capital flow management measures were sometimes calibrated symmetrically over the cycle while macroprudential measures were mostly deployed during inflow episodes. Assessment of the macroeconomic conditions paints an inconclusive picture on the benefits or costs of such policies, suggesting the need for further analysis.

Keywords: emerging markets; monetary and exchange rate policies; inflation targeting; foreign exchange intervention; capital flows; macroprudential measures.; WP; monetary policy decision; exchange rate volatility; inflation targeting regime; monetary policy independence; FX turnover BIS data; macroprudential measures; inflation expectation; depreciation pressure; Inflation; Exchange rates; Financial sector stability; Depreciation; Central bank policy rate; Africa; Global (search for similar items in EconPapers)
Pages: 22
Date: 2020-11-08
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