Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets

Posted: 12 May 2012 Last revised: 28 Apr 2014

Multiple version iconThere are 3 versions of this paper

Date Written: February 10, 2012


Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows.

Keywords: Monetary Policy, Emerging Markets, Financial Repression, Mises, Hayek

JEL Classification: B53, E32, E44, F41, F43

Suggested Citation

Hoffmann, Andreas, Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets (February 10, 2012). Available at SSRN: or

Andreas Hoffmann (Contact Author)

Leipzig University ( email )

Institute for Economic Policy
Grimmaische Str. 12
Leipzig, 04109


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