Should Emerging Economies Embrace Quantitative Easing during the Pandemic?

RePEc Short ID: pga73
ORCID iD: 0000-0003-4916-7293

Benigno, Gianluca; Garcia Herrero, Alicia; Hartley, Jonathan S.; Rebucci, Alessandro; Ribakova, Elina

Discussion Paper

Should Emerging Economies Embrace Quantitative Easing during the Pandemic?

Abstract: Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.

Keywords: emerging markets; quantitative easing; COVID-19;

JEL Classification: E52;