Essays on Financial Intermediation and Monetary Policy in Emerging Market Economies

Download or read book Essays on Financial Intermediation and Monetary Policy in Emerging Market Economies written by Yunsang Kim and published by . This book was released on 2020 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the second chapter, we offer an evaluation of claims by policymakers in the EMEs regarding adverse effects of the capital inflows that resulted from US monetary policy during the Great Recession. Our two-country model with financial frictions allows us to consider the welfare effects of contractionary shocks to capital quality under a passive US monetary policy. We compare these effects to the effects of the same shocks when US monetary policy responds with quantitative easing. We find that emerging-market complaints regarding the real exchange rate and current account are mostly due to the shock itself, and not to the US monetary policy. US monetary policy reacting to the shock brings welfare gains for both the US and the EMEs. The gains for the US are an order of magnitude larger than the welfare gains of the EMEs, reflecting the fact that a capital quality shock that originated in the US damages the US the most.