UMPS' Spillovers, and the Periphery's Spillbacks: Quantitative Tightening and the Dollar's Endgame
25 Pages Posted: 9 May 2017
Date Written: May 6, 2017
Spillovers from the Fed’s Unconventional Monetary Policies (UMPs) have disabled EM central banks to manage rate policies to stem off valuation effects on their currency’s exchange rates and equities. The failures of the standard policies have prompted in the economics debate the need of crafting globally coordinated macro-prudential actions aimed at mitigating the potency of the dollar global financial cycle.
Yet, the urgency to shield from valuation effects their national currencies, have pushed several Emerging Market Economies to reintroduce capital controls, and sale off large chunks of FX reserves, largely denominated in US dollar. An investigational literature (IMF 2016; BIS 2016; Winkler et Alii 2015; Eggertsson et Alii 2016), finds that the FX sell-off has prompted a new-brand spillovers, or spillbacks, detected in rising yields on the US T-bond, and German Bund. In a scenario of a FX reserves’ drawdowns, are set to emerge quantitative tightening and currency diversification, with the latter granting a major role to former peripheral currency, above all the Chinese RMB.
Keywords: Spillovers; Spillbacks; FX Reserves Drawdowns; Diversification of FX Reserves; Gold; RMB
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