Emerging Markets Monetary Policy: The Last Five Years and the Next Five

Before the crisis emerging countries experienced substantial economic growth and their central banks made considerable progress in adopting modern and theoretically sound frameworks, which further reinforced the benign environment. That period of global growth now appears to have given way to a period where incremental growth looks more like a zero-sum game. As a result, later vintages of the capital stock in the emerging market export sector are likely to generate very low returns. We thus consider that their growth model is broken and that resource misallocation must be stopped. As highlighted during the last post crisis period, monetary policy is ill-equipped to reallocate resources to new sectors and regions. A better tool would be a modern industrial policy that must become the cornerstone of emerging countries policies.