Javier Guzmán Calafell: Reformulating monetary policy in emerging markets and the need for macroeconomic policy coordination

Remarks by Mr Javier Guzmán Calafell, Deputy Governor of the Bank of Mexico, at the policy panel on "Reformulating Monetary Policy in Emerging Markets and the need for Macroeconomic Policy Coordination", given at the "Conference on Global Environment and Policy Challenges in Emerging Markets", organized by the Central Bank of the Republic of Turkey, Antalya, 2 December 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Largely as a result of the difficulties faced following the outburst of the Global Financial Crisis, macroeconomic policy coordination has gained increasing relevance in recent years. This has two dimensions. Domestically, a context characterized by stubbornly low rates of inflation and deflationary risks, anemic economic growth or outright contraction, as well as monetary policies constrained by the zero lower bound on interest rates, particularly in the advanced economies, underline the need to jointly activate different policy levers in order to effectively overcome such a situation. In a second dimension, the growing and increasingly complex interlinkages in the world economy brought about by the ongoing process of economic and financial globalization have increased the potential for spillovers and boomerang effects of domestic policy measures in the major economies, thus highlighting the importance of coordinating actions at the international level under certain circumstances, for instance, in the presence of global shocks.

While the above arguments apply fundamentally to advanced economies, clearly, the importance of an adequate coordination of macroeconomic policies is nowadays more pressing for emerging market economies (EMEs) as well. In fact, the challenges resulting from globalization can be even more acute for these countries. It is also worth noting that the policy response in advanced economies to the Global Financial Crisis has sharply increased the volatility of capital flows to EMEs, with episodes of large inflows alternating with bouts of outflows. Simultaneously, the crisis has reduced the global growth potential, fostered anti-globalization sentiment and, in general, substantially increased uncertainty.