EMERGING MARKETS NOW ABLE TO COUNTER DOWNTURNS – BIS

Most emerging market economies have successfully carried out countercyclical policies in the last decade, similar to advanced economies, contributing to the stability of the global economy, a study by the BIS said.

    In the past, monetary policy in many emerging economies was handcuffed by expansionary fiscal policy in economic upswings – known as fiscal dominance -- leaving little scope for policy easing during downturns.

    "However, the era of fiscal dominance appears to have ended in most EMEs,” said the Bank for International Settlements in its June quarterly review, adding that emerging economies relied on both fiscal and monetary policy to lean more heavily against the business cycle.

    But the BIS also cautioned that the example of crises-hit euro area countries, which pursued countercyclical policies in the past decade, shows that authorities can never become complacent and policies must be monitored continuously.

    “Countercyclicality is a necessary but not a sufficient condition for sound macroeconomic policy,” the BIS said.

Read more at the BIS: www.bis.org/publ/qtrpdf/r_qt1206.htm

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