Thursday, June 06, 2013

Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets

This paper attempts to shed light on the link between monetary policy in large economies with international currencies (the United States and the euro area) and the use of reserve requirements in emerging markets.

Using reserve requirement data for 28 emerging markets from 1998 to 2012 this paper provides evidence that emerging markets tend to raise reserve requirements and repress financial markets to curb speculative capital inflows when interest rates in the major economies decline.

The finding suggests that the current low interest rate policies of the major economies may have collateral effects on emerging markets by triggering financially repressive policies....

Click here to download the full report

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