During the 1980s and 1990s, the vulnerability of EMEs to shocks was often exacerbated byhigh fiscal deficits, underdeveloped domestic bond markets, and large currency and maturity mismatches. In many cases fiscal and monetary responses were procyclical. Debt management policy played very little part in either the choice of an optimal debt maturity or in stabilising the economy. Since the beginning of 2000s, however, the role of fiscal and monetary policy has started to become more active. Fiscal deficits and public debt levels in EMEs as a whole have declined substantially. Domestic financing has increased, and the share of foreign currency debt has fallen dramatically. And the average public debt maturity has lengthened significantly. What do these developments mean for monetary policy, particularly in the context of the recent global financial crisis? Has the threat of fiscal dominance in EMEs lessened, just when it hasgrown in the advanced economies (BIS (2012))? Have fiscal and monetary policies in EMEs become more countercyclical than in the past? Has the development of domestic bond markets helped? What role have central banks played in debt management and what are the implications for monetary policy?
These questions were the focus of the 17th Annual Meeting of Deputy Governors from major EMEs held at the BIS in Basel on 16-17 February 2012. The meeting addressed three issues: (i) the fiscal constraints on monetary policy; (ii) the impact of local currency bond markets on central bank policies; and (iii) the role of central banks in public debt management.
This BIS Paper volume brings together the papers prepared by the BIS staff for the meeting as well as the contributions of central banks.