This piece by Professor Giancarlo Corsetti and Riccardo Trezzi was published on 16 February 2023 and questions whether some form of coordination in stabilisation policy would be necessary to reduce major economic risks.
"The rapid pace at which central banks across the world have been increasing policy rates in response to rising inflation has raised concerns about the disruptive effects of cross-border spillovers. Everything else equal, a monetary contraction in a country tends to raise inflation and reduce activity abroad. When the contraction originates in a systemically important country like the US, it drives risk premia and deteriorates borrowing conditions in global markets. This magnifies the risk of turmoil in sovereign and external debt markets, especially, but not exclusively, in emerging market economies and less developed economies. The main concern is that if central banks fail to internalise cross-border spillovers, their actions may result in excessive contraction worldwide and create debt crises– a risk that could be moderated, if not avoided altogether, by coordinating the anti-inflationary stance."
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