Gianluca Benigno, Jon Hartley, Alicia García-Herrero, Alessandro Rebucci, Elina Ribakova, 29 June 2020

Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimising the risks of large depreciations and spiralling inflation. 

Alicia García-Herrero, Elina Ribakova, 21 May 2020

The spread of COVID-19 and its associated impacts have again brought into focus the dependence of emerging market economies on external financing. This column analyses the factors that put emerging economies at an increased risk of a sudden reduction in dollar liquidity as a consequence of the COVID-19 outbreak. Based on this analysis, it reviews the key tools at the disposal of emerging economies, the Fed, and the IMF to address this problem. It concludes by offering some policy recommendations on the pecking order that could be followed to potentially shield the emerging economies from the dollar shortage problems related to COVID-19.

Kevin Daly, Tadas Gedminas, Clemens Grafe, 20 May 2020

Although the COVID-19 crisis is a global phenomenon, emerging market economies are in a weaker position than developed economies to absorb its fiscal costs. This column assesses the impact of the crisis on government deficits and debt levels in emerging markets, and the fiscal adjustments that are likely to be required in the aftermath of the crisis. The findings suggest that median government debt will rise by around ten percentage points of GDP and that most emerging economies will face painful post-crisis adjustments. The results also imply a strikingly wide range of outcomes across emerging economies around the world.

Erica Bosio, Simeon Djankov, 06 May 2020

With lockdown measures in place almost worldwide now, cash-flow represents a significant concern for firms across multiple sectors. It remains to be seen exactly which types of business will be able to weather the coming storm. This column estimates the survival time of nearly 7,000 firms in a dozen Southern European and emerging market economies. Under the assumptions that firms have no incoming revenues, the median survival time across industries ranges from 8 to 19 weeks. Once collapsed export demand is taken into account, the median survival time falls to between 8 and 14 weeks.

Silvia Marchesi, Tania Masi, 04 May 2020

As a consequence of the COVID-19 crisis, which will hit certain countries particularly hard (including those with official creditors), there may be a wave of debt restructuring over the next few years. This column argues that the specific characteristics of sovereign debt re-negotiations are important. In particular, it focuses on the link between sovereign restructurings and ratings, an issue that is of relevance but that has not received enough attention in recent research. 

Rui Esteves, Nathan Sussman, 18 April 2020

After an initial lull, financial markets reacted with a vengeance to the COVID-19 pandemic. Comparisons with 2008 are inevitable, but the ultimate impact on markets is still unclear. This column argues that the spread of the pandemic has little explanatory power over financial stress. Markets reacted as in any international financial crisis by penalising emerging economies (and countries without credible monetary anchors), exposing age-old vulnerabilities. This finding highlights the need for credible, but flexible, sovereign currencies and the need to build up liquidity reserves.

Tobias Krahnke, 14 April 2020

Fears of a next wave of emerging market debt crises recently sparked a renewed debate about the adequacy of IMF resources and its toolkit. This column argues that the issue is not whether the IMF has sufficient resources for large-scale financial assistance to all of its members in need, but that such assistance would ultimately be counterproductive and could, in fact, exacerbate the risk of liquidity crises morphing into solvency crises. One of the reasons is that large-scale IMF financial assistance coupled with the IMF’s preferred creditor status can lead to a crowding-out of private investors by increasing their expected loss in the event of default. This underlines the need for all elements of the international monetary and financial system to assume their full responsibility, including the private sector.

Giancarlo Corsetti, Emile Marin, 03 April 2020

In crises, the dollar tends to appreciate – especially against emerging market currencies – and dollar liquidity becomes scarce. This column shows that today’s events are following the historical pattern. Forex market turmoil is preceded by an inversion of the US yield curve as investors, anticipating tough times ahead, require relatively high short-term yields and an appreciation of relatively risky currencies until the disaster occurs. Then, the dollar appreciates sharply. Then, emerging markets suffer massive capital flight. What’s new about the COVID-19 crisis is its scale and speed.

Eduardo Levy Yeyati, 31 March 2020

Dollar shortages and the real consequences of the COVID pandemic may lead to the next wave of emerging market debt crises. This column argues that Fed swaps mitigate this shortage only for a few selected countries, and traditional international financial institutions’ products are ill-designed to assist an emerging market facing a sudden stop. As a broker between central banks and emerging economies, the IMF has a unique opportunity to complete the international financial architecture and fill the lender of last resort role that has long eluded it.

Benjamin Born, Gernot Müller, Johannes Pfeifer, Susanne Wellmann, 13 March 2020

Country spreads have traditionally been discussed in the context of emerging market economies, which tend to have high and volatile spreads. This column analyses spreads for both emerging and advanced economies before and after the Global Crisis. It argues that an ‘unpleasant convergence’ took place after 2008 and that the behaviour of country spreads in advanced economies is now similar to that in emerging economies. This is due to a both a decline in the volatility of the spreads for most emerging economies and an increase in volatility for advanced economies.

Gaston Gelos, Lucyna Gornicka, Robin Koepke, Ratna Sahay, Silvia Sgherri, 04 February 2020

Capital flows to emerging markets have continued to be highly volatile since the Global Crisis. This column uses a new framework to show that country characteristics and policy responses matter for risks to future capital flows. It finds that good institutions support stable capital flows over the medium horizon, and while foreign exchange interventions seem to help mitigate downside risks to inflows caused by worsening global conditions, a tightening of capital flow measures in response to an adverse global shock is found to be counterproductive.

Emily Liu, Friederike Niepmann, Tim Schmidt-Eisenlohr, 02 February 2020

After the Global Crisis, accommodative monetary policy also eased financial conditions in emerging market economies. This column shows that US banks contributed to the transmission of US monetary policy and that regulation and supervision attenuated it. Only US banks that performed well in the Fed’s annual stress tests expanded their lending to emerging markets in response to monetary easing. Banks that performed poorly left their lending unchanged.

Erik Feyen, Jon Frost, Harish Natarajan, 16 January 2020

Proposals for global stablecoins have put a welcome spotlight on deficiencies in financial inclusion and cross-border payments and remittances to emerging market and developing economies. This column, part of the Vox debate on digital currencies, argues however that stablecoin initiatives are no panacea. Moreover, they pose particular development, macroeconomic and cross-border challenges for emerging market and developing economies. It remains to be seen whether stablecoins can offer a decisive comparative advantage over fast-moving fintech innovations in these countries that are built on or improve the existing financial plumbing.

Johannes Eugster, Giang Ho, Florence Jaumotte, Roberto Piazza, 12 June 2019

Technology diffusion to emerging markets helps share growth potential across countries and lift global living standards. Using a global patent citation dataset, this column estimates the magnitude and impact of international knowledge and technology diffusion, as well as the role that globalisation has played. In emerging markets, knowledge flows have increased innovation and productivity. Competition from emerging markets benefits global innovation.

Thorsten Beck, Liliana Rojas-Suarez, 04 May 2019

The Global Crisis originated in the financial systems of advanced countries, so it is unsurprising that the Basel III international standards focused on the stability needs of these countries. This column assesses the implications of Basel III for emerging markets and developing economies. It also outlines the recommendations from a task force of current and former senior officials from central banks in these countries on how to make Basel III work for them.  

Jongrim Ha, M. Ayhan Kose, Franziska Ohnsorge, 11 April 2019

Emerging market and developing economies have achieved a remarkable decline in inflation since the early 1970s, supported by robust monetary policy frameworks, strengthening of global trade, financial integration, and the disruptions caused by the global crisis. The column argues that a continuation of low and stable inflation in these countries is not guaranteed. If this wave of structural and policy-related factors loses momentum, elevated inflation could re-emerge. Policymakers may find that maintaining low inflation is as difficult as achieving it.

Charles Calomiris, Mauricio Larrain, Sergio Schmukler, 24 December 2018

In emerging economies, studies of the relationship between foreign investor participation in public equity markets and aggregate economic activity find strong effects on productivity, investment, economic growth, and the price of publicly traded stocks. But it is not clear why. The column shows that equity capital inflows increase the supply of funding available to firms in emerging market economies, encouraging firms to obtain more equity financing to invest and expand. Large firms benefit most from those inflows. 

Carlos Vegh, Guillermo Vuletin, Daniel Riera-Crichton, Juan Pablo Medina, Diego Friedheim, Luis Morano, Lucila Venturi Grosso, 14 November 2018

Emerging markets are especially vulnerable to a myriad of domestic and external risks. This column develops a framework to classify these risks based on their predictability and, hence, their insurability. As the probability of relatively large events increases, it becomes more difficult to insure against such risks. In the extreme case in which countries face truly unpredictable and impactful events (or ‘black swans’), they must rely on building broad-based resilience or resorting to ex-post aid. 

Nicola Mai, 14 June 2018

The rise in global debt has continued unabated following the Global Crisis. This column argues that elevated debt levels will continue to put downward pressure on equilibrium interest rates across the world’s major economies, constraining central bank efforts to normalise rates and supporting the thesis that global equilibrium interest rates have fallen.

Yasin Mimir, Enes Sunel, 03 April 2018

The Global Crisis originated in developed economies but was also a large shock to emerging market economies. Based on this event, this column argues that emerging market central banks should take into account domestic and external financial variables such as bank credit, asset prices, credit spreads, the US interest rate and the real exchange rate, not just effects on inflation and real economic activity. A stronger anti-inflationary stance is needed when monetary policy aims to maintain financial stability.



CEPR Policy Research