Currency mismatches in the major EMEs have been much reduced over the past decade. The development of deeper domestic bond markets has contributed greatly to this. Stresses in international markets after the failure of Lehman severely tested these new markets. There was a flight of foreign...

Large-scale central bank purchases of government bonds have made the long-term interest rate key in the monetary policy debate. How central banks react to bond market movements has varied greatly from one episode to another. Driving the term premium in long-term rates negative may stimulate...

Few financial variables are more fundamental than the 'risk free' real long-term interest rate because it prices the terms of exchange over time. During the past 15 years, it has dropped from a range of 4 to 5% to a range of 0 to 2%. By late 2011, cyclical factors had driven it close to zero....

This paper examines the financial and macroeconomic consequences of changes in central bank balance sheets. Large-scale purchases of bonds tend to drive down long-term interest rates. But developments in global markets, which shape the world long-term rate, exert some powerful constraints....

Monetary policies pursued in response to the financial crisis have shown that changes in central bank balance sheets have major macroeconomic consequences. The New Classical Macroeconomics, which gained increasing sway from the late-1980s, had led to an exclusive focus on the policy rate and a...

The global long-term interest rate now matters much more for the monetary policy choices facing emerging market economies than a decade ago. The low or negative term premium in the yield curve in the advanced economies from mid-2010 has pushed international investors into EM local bond markets:...

Financial conditions in the emerging markets (EMs) have become more dependent on the 'world' long-term interest rate, which has been driven down by monetary policies in the advanced economies - notably Quantitative Easing (QE) - and by several non-monetary factors. This paper analyses some new...

International linkages between interest rates in different currencies are strong, and ultra-low rates have become a global phenomenon. This paper compares how interest rates in advanced economies and in emerging economies are conditioned by two global benchmarks - the Federal funds rate at the...

Most quantitative easing programmes primarily involve central banks acquiring government liabilities in return for central bank reserves. In all cases this process is undertaken by purchasing these liabilities in the secondary market rather than directly from the government. Yet the only...

Central banks have undertaken a revolution in monetary policy. They reluctantly abandoned conventional wisdom designed to keep them out of political trouble. This paper looks at this revolution through the lens of the divergent perspectives of the IMF and the BIS. The Jeremiahs predicted this...