Paper offers solution to EME monetary transmission puzzles
Price and exchange rate conundrums are interconnected, authors find
Forward-looking expectations may be the key to solving apparent monetary policy transmission puzzles in emerging market economies (EMEs), new research finds.
The authors – Jongrim Ha, Dohan Kim, M Ayhan Kose and Eswar Prasad – note that when many EME central banks tighten policy, inflation rises and the exchange rate falls. These phenomena are known in the academic literature as price and FX puzzles.
Some economists have attributed the puzzles to the countries’ financial markets being less well
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