Brookings Podcast on Economic Activity
How have Fed interest rate hikes affected other national economies?
Nov 9, 2023
Fed interest rate hikes historically triggered crises in emerging markets, but not this time. Study explores improved monetary policy credibility in these countries. Discussion on the concept of capital leaving emerging markets and its consequences. Impact of improved credibility of central banks in major emerging markets and a new index to measure policy credibility. Potential consequences of rate hikes on emerging markets and poorer countries, emphasizing the importance of improving monetary policy credibility. Implications for countries planning to connect with global financial markets, emphasizing the need for improved policy frameworks and vulnerability management.
31:06
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Quick takeaways
- Improved policy credibility and lower dollar debt in emerging markets have helped maintain stability during Fed interest rate hikes.
- Reduced reliance on borrowing in foreign currency has limited vulnerability to capital outflows and exchange rate pressures in emerging markets.
Deep dives
Emerging Markets' Resilience to US Interest Rate Hikes
Despite high inflation and multiple interest rate hikes by the Federal Reserve, emerging markets and developing economies have not experienced significant negative repercussions as in the past. This resilience can be attributed to improved policy credibility and lower dollar debt in their corporate sectors. In the past, the suggestion of Fed hikes alone, without actual tightening, has led to capital outflows, risk spreads, and sudden stops in emerging markets. However, recent events have shown a different outcome, thanks to countries gaining monetary policy credibility and reducing their reliance on borrowing in foreign currency. These factors have helped maintain investor trust and stability in emerging markets.
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