Global impact of loss of confidence in Asian emerging markets

Abstract

With the interest rate hike in the US and, more recently, in the UK, sudden stops in investments and capital reversals are apparent in the Asian emerging economies. A modelling approach is taken, using the G‐Cubed model, to simulate the potential global economic impacts, with a focus on Asia. The results demonstrate that myopic fiscal interventions in Asian emerging economies could result in short‐term stimulus, at the expense of long‐term growth. The stimulus in advanced economies too would be short‐lived, diverting the benefits to unintended fractions in the global economy. Advanced economies that minimally change their trade and investment patterns tend to avoid distortionary impacts of the crisis.

On DSGE Models

“…There is nothing the creditor can do to affect payments received on past short-term debt. 5 There is always an equilibrium in the Gertler and Kiyotaki (2015) model in which shadow banks can roll over the short-term debt without incident. But, there can also be an equilibrium in which each creditor chooses not to roll over the debt.…”

“…The key theoretical antecedent is the bank run model ofDiamond and Dybvig (1983) and the sovereign debt rollover crisis model ofCole and Kehoe (2000) 5. Unlike in the classic bank run model ofDiamond and Dybvig (1983), there is no reason to impose a sequential debt service constraint 6.…”

Navigating Uncharted Waters: The Transformation of the Bank of Korea’s Monetary Policy in Response to Global Economic Uncertainty

“…According to Yoshino et al [42], Ca'Zorzi et al [43], and Jalali-Naini and Naderian [44], a flexible exchange rate can support export competitiveness by facilitating necessary currency adjustments during external demand shocks. Similarly, Fernando [45], Rodríguez et al [46], and Shvets [47] find that proactive exchange rate interventions can prevent excessive currency appreciation and maintain export growth during periods of strong external demand. However, these interventions can lead to significant fluctuations in foreign exchange reserves, as observed by Viktorov and Abramov [48], Bitar [49], and Diluiso et al [50], requiring careful management to mitigate destabilizing effects on the monetary balance.…”