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In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes.

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As a further contribution to the growing international literature on exchange rate pass-through (PT), this study assesses the extent of PT for Irish import prices over the period 1963 to 1995. It fills two important gaps in the literature, by making due allowance for the time series properties of the data and by concentrating on the case of a small open economy. In order to assess the extent of PT a mark-up model for aggregate import unit values is employed. It is argued that the usual single equation mark-up estimation technique leads to seriously biased and inefficient estimates of the degree of PT, as it ignores the strong simultaneity of import prices and domestic competing prices. This study makes use of the Johansen technique to allow for such simultaneity and uncovers two long-run equilibrium relationships among the data, for import unit values and domestic competing prices, and confirms the existence of very close to full PT for both. Previous results in the literature demonstrating substantially less than full PT may be due to the failure to make proper allowance for the time series properties of the data or for the strong simultaneity which exists between import and domestic competing prices.