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Are Rising U.S. Interest Rates Destabilizing for Emerging Market Economies?

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Abstract

Rising U.S. interest rates are often thought to be bad news for emerging market economies (EMEs) as they increase debt burdens, trigger capital outflows, and generally cause a tightening of financial conditions that can lead to financial crises. Indeed, as shown in Figure 1 below, the rise in the federal funds rate (the black line) during the Volcker disinflation of the early 1980s was associated with a sharp rise in the incidence of financial crises in EMEs (the green bars).

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  • Jasper Hoek & Steven B. Kamin & Emre Yoldas, 2021. "Are Rising U.S. Interest Rates Destabilizing for Emerging Market Economies?," FEDS Notes 2021-06-23-2, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfn:2021-06-23-2
    DOI: 10.17016/2380-7172.2930
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    Cited by:

    1. Gudmundsson, Tryggvi & Klyuev, Vladimir & Medina, Leandro & Nandwa, Boaz & Plotnikov, Dmitry & Schiffrer, Francisco & Yang, Di, 2022. "Emerging markets: Prospects and challenges," Journal of Policy Modeling, Elsevier, vol. 44(4), pages 827-841.

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