Revisiting limits and pitfalls of QE in the emerging markets

Abstract

The pandemic caused by COVID-19 is another huge blow to the world economy after the financial crisis that erupted in 2008. A health crisis has been interweaving with severe economic and social strain following a necessary lockdown for several months during 2020. Although most economies seem to have climbed out of the deep hole caused by The Shutdown, with a current strong economic rebound underway in large parts of the world economy, a longer-term recovery is likely to be difficult as it is surrounded by significant uncertainties and contradictory effects. This paper relies on the line of reasoning presented in Daianu (2020). It highlights the forceful and coordinated policy response in advanced economies in order to deal with the multiple shocks represented by COVID-19. Its main focus is on policy responses in the emerging economies, which have tried to replicate measures adopted in the advanced economies. The paper highlights significant differences between the advanced economies and the emerging economies, which must be considered when trying to adopt QE in the latter. The main inference is that there are limits and pitfalls for the emerging economies when it comes to practice the policy responses of the advanced economies.