PHYSICS 102 Lecture Notes - Lecture 18: Procyclical And Countercyclical, Tantrum, Quantitative Easing
Document Summary
Many in emerging markets live with a fear of global financial forces beyond their control. America"s federal reserve raises interest rates, when global investors lose their appetite for risk, or when multinational banks shrink their lending, emerging markets worry about the impact on their own currencies, balance-sheets and economies. Emerging markets have traditionally struggled to keep inflation under control. For that reason, they have often tethered their exchange rates to the dollar and borrowed in hard currencies at the insistence of foreign creditors. This institutional anchoring helped them attract inflows of foreign capital, which often financed large current-account deficits. But also with their anchors they forces the central bank slavishly to follow the fed"s monetary policy so as to preserve their currency"s standing against the dollar. Whenever foreign capital inflows dried up, emerging markets wrestled with a painful dilemma. And ruin duly arrived in a succession of financial crisis.
