Emerging countries’ counter-currency cycles in the face of crises and dominant currencies

ArXiv ID: 2410.23002 “View on arXiv”

Authors: Unknown

Abstract

This article examines how emerging economies use countercyclical monetary policies to manage economic crises and fluctuations in dominant currencies, such as the US dollar and the euro. Global economic cycles are marked by phases of expansion and recession, often exacerbated by major financial crises. These crises, such as those of 1997, 2008 and the disruption caused by the COVID-19 pandemic, have a particular impact on emerging economies due to their heightened vulnerability to foreign capital flows and exports.Counter-cyclical monetary policies, including interest rate adjustments, foreign exchange interventions and capital controls, are essential to stabilize these economies. These measures aim to mitigate the effects of economic shocks, maintain price stability and promote sustainable growth. This article presents a theoretical analysis of economic cycles and financial crises, highlighting the role of dominant currencies in global economic stability. Currencies such as the dollar and the euro strongly influence emerging economies, notably through exchange rate variations and international capital movements. Analysis of the monetary strategies of emerging economies, through case studies of Brazil, India and Nigeria, reveals how these countries use tools such as interest rates, foreign exchange interventions and capital controls to manage the impacts of crises and fluctuations in dominant currencies. The article also highlights the challenges and limitations faced by these countries, including structural and institutional constraints and the reactions of international financial markets.Finally, an econometric analysis using a Vector AutoRegression (VAR) model illustrates the impact of monetary policies on key economic variables, such as GDP, interest rates, inflation and exchange rates. The results show that emerging economies, although sensitive to external shocks, can adjust their policies to stabilize economic growth in the medium and long term.

Keywords: Countercyclical Monetary Policy, Vector AutoRegression (VAR), Exchange Rates, Capital Controls, Emerging Economies

Complexity vs Empirical Score

• Math Complexity: 4.5/10
• Empirical Rigor: 6.0/10
• Quadrant: Street Traders
• Why: The paper applies theoretical monetary policy concepts (VAR models, historical crises) to specific emerging economies like Brazil and Nigeria, aiming for practical policy insights rather than novel mathematics or fully backtested trading strategies.

  flowchart TD
    R["Research Goal<br/>How do emerging economies<br/>use counter-cyclical policies<br/>to manage crises?"]
    M["Methodology<br/>Comparative Case Studies &<br/>Vector AutoRegression VAR Model"]
    D["Data & Inputs<br/>Macro Variables: GDP, Inflation, Interest Rates, Exchange Rates<br/>Case Studies: Brazil, India, Nigeria"]
    CP["Computational Processes<br/>Data Preprocessing<br/>VAR Model Estimation<br/>Impulse Response Analysis"]
    F["Key Findings & Outcomes<br/>Monetary policy tools effectively stabilize growth<br/>Sensitivity to external shocks confirmed<br/>Policy recommendations for crisis management"]