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Did the Unconventional Monetary Policy of the U.S. Hurt Emerging Markets?

Author

Listed:
  • Matthew Canzoneri

    (Georgetown University)

  • Robert Cumby

    (Georgetown University)

  • Behzad Diba

    (Georgetown University)

  • Yunsang Kim

    (Georgetown University)

Abstract

Policymakers in emerging markets complained that the unconventional US monetary policy response to the Great Recession hurt their economies. US policymakers responded that the policy was geared toward conditions in the US, and that a strong US economy benefited everyone. Here we evaluate these claims in a two country model of the US and an emerging market country, bombarded by shocks to the net worth of US banks. Our model allows us to calculate a “passive equilibrium” in which US monetary policy does not respond to the shock in any way. Then, we calculate a “self oriented” equilibrium in which quantitative easing is set optimally to maximize US welfare, and a “cooperative” equilibrium in which quantitative easing and the monetary policy in the emerging market country are set to maximize joint welfare. Comparing welfare in these equilibria, we find that the self oriented US monetary policy benefits both countries, and that cooperation brings little further improvements in welfare.

Suggested Citation

  • Matthew Canzoneri & Robert Cumby & Behzad Diba & Yunsang Kim, 2021. "Did the Unconventional Monetary Policy of the U.S. Hurt Emerging Markets?," Open Economies Review, Springer, vol. 32(2), pages 231-257, April.
    • Handle: RePEc:kap:openec:v:32:y:2021:i:2:d:10.1007_s11079-021-09616-8
    DOI: 10.1007/s11079-021-09616-8
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    References listed on IDEAS

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    Cited by:

    1. Richard T. Froyen & Alfred V. Guender, 2022. "The Mundellian Trilemma and Optimal Monetary Policy in a World of High Capital Mobility," Open Economies Review, Springer, vol. 33(4), pages 631-656, September.

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    More about this item

    Keywords

    Unconventional monetary policy; Emerging markets;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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