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Monetary and macroprudential policy under global financial cycle: The experience of small open economies
https://doi.org/10.32609/0042-8736-2021-6-5-31
Abstract
This review examines the impact of the global financial cycle on small open economies and compares the effectiveness of various monetary and macroprudential policies in the presence of global financial cycle. First, we provide a classification of the channels through which the monetary policy of the world financial regulators (US Federal Reserve, ECB), which largely determines the global financial cycle, is transmitted to small open economies: the channel for interest rates differential, the channel for the activities of global financial institutions, and the channel for commodity prices. Second, by analyzing the arguments of supporters and critics of the monetary policy trilemma, we show how the literature comes to the conclusion that inflation targeting policy is still one of the most optimal solutions for achieving the goals of price and macroeconomic stability but fails to ensure financial stability. The latter requires active coordination with macroprudential policy measures. These conclusions are supported by the analysis of case studies of specific countries (Russia, New Zealand, Brazil, Turkey, etc.), which attempted to mitigate negative consequences of the 2007—2009 global financial crisis.
Keywords
global financial cycle,
credit cycle,
business cycle,
monetary policy,
macroprudential policy,
trilemma
JEL: E32, E52, E58, F32, F44
About the Authors
R. R. Akhmetov
Center for Macroeconomic Analysis and Short-term Forecasting; Institute of Economic Forecasting of the Russian Academy of Sciences; HSE University
Russian Federation
Russian Federation
Moscow
M. E. Mamonov
MGIMO University; CERGE-EI, Charles University
Russian Federation
Russian Federation
Moscow
Prague
V. A. Pankova
Center for Macroeconomic Analysis and Short-term Forecasting; Institute of Economic Forecasting of the Russian Academy of Sciences; HSE University
Russian Federation
Russian Federation
Moscow
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For citations:
Akhmetov R.R., Mamonov M.E., Pankova V.A. Monetary and macroprudential policy under global financial cycle: The experience of small open economies. Voprosy Ekonomiki. 2021;(6):5-31. (In Russ.) https://doi.org/10.32609/0042-8736-2021-6-5-31
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