Emerging Markets’ Central Banks: “New Normal” or Business as Usual?

• In Event: Macroeconomía y Desarrollo

Abstract

Despite much discussion about a “new normal” for advanced economies’ central banks, less attention has been paid to how the 2008 crisis affected emerging markets’ central banks. Engaging with this question, the paper investigates the central banks in Brazil, Mexico and India. The three case studies reveal distinct institutional arrangements, monetary policy frameworks, and resilience to the 2008 crisis. In Brazil, "central bank autonomy", key to the 1990s macroeconomic reforms, has been challenged by recent exchange rate volatility and fiscal expansion. Current fiscal adjustment has reversed this path. In Mexico, institutionalized central bank independence has been linked to relative resilience to the 2008 crisis and the ability to weather volatility related to the Fed’s tapering of its quantitative easing program. In India, where gradualism prevails, inflation targeting was adopted in 2015, confirming continuity in central bank leadership and the traditionally cautious move towards the bank’s autonomy. We estimate each institution’s "credibility" through a combination of independent variables and qualitatively examine the banks’ narratives and strategies. It is argued that no “new normal” exists; far from a uniform picture shaped by international developments, central banks’ main challenges remain those related to contending with domestic political dynamics.

Authors

• Maria Antonieta Del Tedesco Lins, Universidade de São Paulo

• Giselle Datz, Virginia Tech