How does Fiscal Policy Affect Monetary Policy in Emerging Market Countries?

The article shows the modification of monetary policy and modification of its interaction with fiscal policy in response to the challenges of the global financial crisis and the corona crisis, as well as reveals potential macroeconomic policy adjustments in response to long-term structural changes in the global economy. The specificity of the global financial and economic crisis, which was caused by financial intermediaries, and the belief in markets efficiency led to the dominance of monetary instruments in combating this crisis. However, purely monetary stimulus does not solve structural problems, and, acting with a very low degree of targeting, but on a huge scale, leads to the debt accumulation and financial crises. The corona crisis forced to resort to budget incentives to ensure targeted support for people and businesses and provided an impetus to discuss the ways to make better use of fiscal policy capacity to increase potential GDP and reduce inequality. The following potential long-term adjustments of macroeconomic policy are revealed: 1) increasing the emphasis on the interests of employees; 2) increasing the inclusiveness of monetary and fiscal policy; 3) the growing role of fiscal policy as an instrument of macroeconomic stabilization; 4) revision of the theory of monetary and fiscal policy interaction; 5) revision of the pre-emptive approach to anti-inflation policy, which means the reaction of monetary policy to deviations of the inflation forecast from the target, and the emergence of alternatives: response to the actual achievement and maintenance the inflation target for some time and compensation for the previous deviations from the inflation target; 6) modification of the optimal anti-inflationary policy in response to demand-pull inflation and cost-push inflation; 7) adjustment of the monetary policy in response to rising inflation due to the exhaustion of long-standing global disinflationary forces that have been in effect since the 1980s; 8) more active monetary and fiscal stimulus in emerging market economies.

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Monetary Policy Transmission : Does Maintain the Price and Poverty Stability is Effective?

JEJAK ◽

10.15294/jejak.v11i1.12652 ◽

2018 ◽

Vol 11 (1) ◽

pp. 78-91

Author(s):

Ade Novalina ◽

Rusiadi Rusiadi

Keyword(s):

Monetary Policy ◽

Emerging Market ◽

Food Price ◽

Poor People ◽

Monetary Policy Transmission ◽

Economic Stability ◽

Price Inflation ◽

Emerging Market Countries ◽

Policy Transmission

This study analyzes the effectiveness of monetary policy transmission of emerging market countries, both short and long-term in maintaining economic stability and reducing poverty. The main problem in this paper is that monetary transmission is incapable of controlling the economy and reducing poverty. There are five countries selected such as India, Brazil, China, Russia, and Indonesia. Long-term prediction analysis using Vector Auto Regression (VAR) model is performed to predict five emerging market countries using Regression Panel. It results suggest that monetary policy transmission affecting the number of poor people should be controlled in three stages. In the short-term, the transmission of export variables and inflation controls the number of poor people. In the medium-term, the control of the number of poor people uses variables of inflation and exports while in the long-term uses exports and Gross Domestic Product (GDP). Overall, all economic variables of emerging market countries are greatly influenced by the fluctuations of each country's exports, then by food price stability as measured by food price inflation. The result of regression panel analysis is known that the factor that most influence the poor people in emerging market country is GDP. Exports also affect poor people such as Indonesia, China, and Russia. Inflation also causes poor people like India and Brazil. The countries that have the most impact on economic fluctuations on the number of poor people are India, Indonesia, China, Brazil, and Russia.

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Inflation targeting challenges in emerging market countries: The case of Serbia

Economic Annals ◽

10.2298/eka1504007s ◽

2015 ◽

Vol 60 (204) ◽

pp. 7-30 ◽

Cited By ~ 1

Author(s):

Dejan Soskic

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Emerging Market ◽

Institutional Development ◽

Policy Framework ◽

Fiscal Discipline ◽

Emerging Market Countries ◽

Monetary Regime ◽

Developed Nations ◽

Monetary Policy Framework

In the past two decades Inflation targeting has been the monetary policy framework of choice for many developed nations around the world. A significant number of emerging market countries have gradually subscribed to the same monetary regime, but with different levels of success. Certain differences among emerging markets in terms of overall macroeconomic environment, strength of basic monetary policy tools, and institutional development have had an effect on the performance of inflation targeting. This paper focuses on the fulfilment of basic preconditions for implementation of inflation targeting in emerging market countries, and on results and challenges of inflation targeting implementation in Serbia more than six years after its introduction. Special attention is paid to high dollarization (euroization), which poses a serious challenge for inflation targeting, and to modification of the Taylor rule for dollarized economies. For inflation targeting in Serbia to be more effective, a (gradual) decrease in overall dollarization (euroization), fiscal discipline and sustainability, and an increase in the independence and capacity of the central bank are needed, among other things.

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