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Global financial cycle and monetary policy rules: a Neo-Kaleckian model for emerging markets and developing economies

In: Monetary Policy Challenges in Latin America

Author

Listed:
  • Gabriel Michelena
  • Fernando Toledo

Abstract

We analyze the bust Global Financial Cycle (GFCy) transmission to Emerging Markets and Developing Economies (EMDEs) through a Neo-Kaleckian model of growth, inflation, income distribution, and external debt. We calibrate and simulate the model to evaluate the effects of this phase of GFCy spread on income distribution, capacity utilization, and real exchange rates. We propose several monetary policy rules to examine how financial centers’ monetary spillovers could be mitigated during the bust GFCy stage. We find that external financial shocks conducted by GFCy to EMDEs could be magnified or dampened out, depending on the kind of monetary policy rules followed by EMDEs’ central banks.

Suggested Citation

  • Gabriel Michelena & Fernando Toledo, 2023. "Global financial cycle and monetary policy rules: a Neo-Kaleckian model for emerging markets and developing economies," Chapters, in: Fernando Toledo & Louis-Philippe Rochon (ed.), Monetary Policy Challenges in Latin America, chapter 5, pages 78-95, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20918_5
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    File URL: https://www.elgaronline.com/doi/10.4337/9781802200706.00016
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