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Is Credit Easing Viable in Emerging and Developing Economies? An Empirical Approach
Author:
Mr. Luis Ignacio Jácome null

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Tahsin Saadi Sedik
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Alexander Ziegenbein null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 043
Language:
English
Publication Date:
08 Mar 2018
DOI:
https://doi.org/10.5089/9781484345160.001
ISBN:
9781484345160
ISSN:
1018-5941
Pages:
42
Keywords:
WP; central bank; nominal exchange rate; Banking crises; credit easing; currency crises; financial stability; macroeconomic stability; effects of credit easing; nominal exchange rate depreciation; currency depreciation; developing economy; inflation expectation; liquidity provision; Monetary expansion; Systemic crises; Inflation; Exchange rate adjustments; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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During the global financial crisis, many central banks in advanced economies engaged in credit easing. These policies have been perceived as largely successful in reducing stress in financial markets, thus avoiding larger output losses. In this paper, we study empirically whether credit easing is also a viable policy tool to cope with banking crises in emerging and developing economies. We find that credit easing leads to a sharp increase in domestic currency depreciation, high inflation, and a substantial reduction in economic growth in a large panel of emerging and developing economies. For advanced economies, we find the effects to be benign. Our results suggest that emerging and developing economies should be cautious when using credit easing as it may fuel adverse macroeconomic repercussions.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund