Challenges to Monetary and Fiscal Policy in Emerging Market Economies

Participants included central bank governors from a range of countries in Latin America, sub Saharan Africa, Eastern Europe, and the Middle East. Columbia faculty members also joined in the discussion, creating a unique opportunity for key policymakers and leading academics to convene and discuss vital macroeconomic and monetary policy issues. The conference followed Chatham House Rule.

The conference had two main sessions. The first session focused primarily on the drivers and associated risks of low long-term interest rates for the global economy that have characterized the past decade. Discussants traded views on how the era of low interest rates has impacted various economies, the potential for the Federal Reserve’s normalization policy to influence capital flows to or from emerging markets, and implications of persistently lower-than-expected inflation numbers. Participants noted how stubbornly low inflation has sparked some discussion in policymaking and academic circles regarding the merits of inflation targeting. Attendees also discussed how numerous advanced economy central banks do not currently have much room to react to a potential recession, given that policy rates are already near the lower bound. Unconventional monetary easing may again play an important role in how central banks respond to a downturn in the near future.

The roundtable also touched upon a range of other economic issues. Participants discussed how many emerging markets have been impacted by fluctuations in commodity prices in recent years. The commodity super cycle has been a key driver of capital flows. Panelists traded views on nonperforming loans and their link with (1) the health of regional banking systems, (2) the challenge of re-capitalizing financial institutions, and (3) the possibility of a low interest rate environment encouraging more risky lending. The IMF raised high growth in private credit as a key issue at the recent annual meetings and many roundtable participants said managing the increase in private debt will be a fundamental issue in the near term. 

The second session of the event focused on the impact of technological and political forces on global economic and financial conditions, paying particular attention to e-currencies and cryptocurrencies. Discussing the potential risks of these financial technologies, the central bankers pointed to the ease of fraud, the potential to use these as a platform for terrorist funding or money laundering, and the immense volatility. Progressing from the risks, the bankers debated whether central banks should prohibit these technologies or whether they should attempt to harness these technologies and implement regulations. Discussing the advantages of cryptocurrencies like Bitcoin, the participants concluded that the main advantage is the anonymity of the currencies and that if this anonymity were to be removed the currency would lose its appeal. Furthermore, the central bankers discussed questions like whether cryptocurrencies could make traditional money obsolete and what value, if any, these technologies added to society as a whole. Conversation also touched on how technology is changing the labor market, with some workers being replaced by automation while other worker’s productivity is being enhanced.

After concluding the discussion on cryptocurrencies, the central bankers presented varying opinions on the observed lower-than-expected inflation numbers, and whether the target inflation rate should be higher. Discussing these low inflation rates in the context of their price-stability mandate, the bankers raised the question of the importance of inflation rates and potential responses to the low inflation rates. The session concluded with an examination of the future of fiscal and monetary policy in emerging market economies.

The event was co-organized by Columbia SIPA’s MPA in Economic Policy Management and the Initiative on Central Banking and Financial Policy.

--Kevin Gilmartin, MPA 2018 & Patrick Maxwell, MPA 2019