presentation: monetary policy frameworks in emes: practice ... · 01 03 05 07 09 11 13 15 17 19 %...
TRANSCRIPT
![Page 1: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/1.jpg)
Monetary policy frameworks in EMEs: practice ahead of theoryClaudio BorioHead of the Monetary and Economic Department 89th Annual General Meeting
![Page 2: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/2.jpg)
2
One question, three takeaways
Why combine IT with FX intervention and macroprudential measures?
Three takeaways
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs
FX intervention and macroprudential measures can help
![Page 3: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/3.jpg)
3
Roadmap
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs
FX intervention and macroprudential measures can help
![Page 4: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/4.jpg)
4
EMEs adopt inflation targeting but not free floating Inflation targeting regimes rise... …but so do FX reserves Use of macroprudential tools
0.0
0.6
1.2
1.8
2.4
02 04 06 08 10 12 14 16 18
//
USD trn
0
5
10
15
20
02 04 06 08 10 12 14 16 18
Inflation targeting EMEsInflation targeting AEs
# of measures
0
20
40
60
80
01 03 05 07 09 11 13 15 17
%
Inflation targetingFX anchor
EMEs: Other
![Page 5: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/5.jpg)
5
Inflation, growth and credit in inflation targeting economiesInflation Real GDP growth Real credit growth
–2
0
2
4
6
8
10
01 03 05 07 09 11 13 15 17 19
%
–7.5
–5.0
–2.5
0.0
2.5
5.0
7.5
01 03 05 07 09 11 13 15 17 19
%
EMEs AEs
–8
–4
0
4
8
12
16
02 04 06 08 10 12 14 16 18
%
![Page 6: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/6.jpg)
6
EMEs face large exchange rate and capital flow swings
–40
–20
0
20
–200
–100
0
100
00 02 04 06 08 10 12 14 16 18
% USD trn
Real exchange rate, EMEs (lhs) Net capital inflows to EMEs (rhs)
![Page 7: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/7.jpg)
7
Exchange rate pass-through is higher in EMEs
–0.3
0.0
0.3
0.6
02 04 06 08 10 12 14 16 18
% pts
EMEs
AEs
![Page 8: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/8.jpg)
8
Financial markets are not as developed in EMEs as in advanced economies
0
150
300
450
ID TR RU IN MX BR CL KR ZA AU CA GB
% of GDP
EMEs
Size of institutional investors Trading in FX derivatives
0
10
20
30
ZAR
HU
FCZ
KTR
YM
XN PLN
CLP
THB
KRW
BRL
RUB
COP
PHP
PEN
INR
IDR
NZD
AUD
GBP SE
KN
OK
CAD
% of GDP
AEs
![Page 9: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/9.jpg)
9
Roadmap
EMEs are more sensitive to capital flows and exchange rates Currency mismatches The financial channel of the exchange rate
This worsens two potential monetary policy trade-offs
FX intervention and macroprudential measures can help
![Page 10: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/10.jpg)
10
Foreign currency debt and foreign ownership raise vulnerabilities in EMEsForeign currency debt Foreign ownership in EME local sovereign bond
markets
0
8
16
24
06 08 10 12 14 16 18
% of total
EMEs Asian EMEs Other EMEs
5
10
15
20
0.0
0.6
1.2
1.8
06 07 08 09 10 11 12 13 14 15 16 17 18
% of GDP USD trn
EMEsBy borrower (lhs):
Asian EMEsOther EMEs
USDCHF/EUR/GBP/JPY
By currency (rhs):
![Page 11: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/11.jpg)
11
The self-reinforcing currency mismatch loop
Appreciation
financial conditionsLoosen
Capital inflows
Depreciation
financial conditionsTighten
Capital outflows
![Page 12: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/12.jpg)
12
Roadmap
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs Stabilising inflation and output at the same time
FX intervention and macroprudential measures can help
![Page 13: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/13.jpg)
13
In EMEs, exchange rate appreciation goes hand in hand with……lower bond yields… …and stronger domestic credit expansion
–0.10
–0.08
–0.06
–0.04
–0.02
0 5 10 15 20 25 30 35 40 45 50
% pts
Spread Risk premium
Days
–0.2
0.0
0.2
0.4
0.6
0 6 12 24 30 36
%
Domestic creditMonths
![Page 14: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/14.jpg)
14
First monetary policy dilemma
![Page 15: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/15.jpg)
15
Roadmap
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs Stabilising inflation and output at the same time Stabilising the economy today vs stabilising it tomorrow
FX intervention and macroprudential measures can help
![Page 16: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/16.jpg)
16
Behaviour of selected variables around crisesCountry group medians, in standard deviations
Advanced economies EMEs
–2
–1
0
1
–16 –12 –8 –4 0 4 8 12
Domestic financial cycle Capital inflows (debt)
–2
–1
0
1
–16 –12 –8 –4 0 4 8 12
Real effective exchange rate
![Page 17: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/17.jpg)
17
Second monetary policy dilemma
![Page 18: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/18.jpg)
18
Roadmap
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs
FX intervention and macroprudential measures can help
![Page 19: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/19.jpg)
19
FX intervention mutes the financial channel of the exchange rateFX intervention leans against appreciation, offsetting capital inflows…
....and dampens credit expansion, offsetting the same flows
–0.3
–0.2
–0.1
0.0
0.1
0.2
% pts of GDPImpact on credit growth
Capital flows
–0.3
–0.2
–0.1
0.0
0.1
0.2
Impact on the exchange rate %
FX intervention
![Page 20: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/20.jpg)
20
Roadmap
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs
FX intervention and macroprudential measures can help But FX intervention is no panacea
![Page 21: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/21.jpg)
21
Roadmap
EMEs are more sensitive to capital flows and exchange rates
This worsens two potential monetary policy trade-offs
FX intervention and macroprudential measures can help But FX intervention is no panacea Need for a macro-financial stability framework
![Page 22: Presentation: Monetary policy frameworks in EMEs: practice ... · 01 03 05 07 09 11 13 15 17 19 % –7.5 –5.0 –2.5 0.0 2.5 5.0 7.5 01 03 05 07 09 11 13 15 17 19 % EMEs AEs –8](https://reader033.vdocuments.site/reader033/viewer/2022042416/5f31e85e91aed7193c379be1/html5/thumbnails/22.jpg)
22
Thank you!