Emerging Markets Quarterly
Emerging Europe and CIS: Greater Exposure, Less Policy Space
Oct 24, 2011
| Last Updated
- Emerging Europe has not only the most direct exposure to the eurozone (EZ) of any emerging market (EM) region through trade and financial channels, but also the weakest domestic balance sheets— meaning external stresses will reinforce domestic vulnerabilities.
- Having expended policy bullets to recover from the global financial crisis, EM Europe economies in aggregate have less policy space than in 2008.
- The central banks’ wait-and-see monetary policy mode largely reflects uneasiness about sharp exchange rate movements that could swell debt levels and boost FX pass-through to inflation. Compared to other EMs, central banks have limited reserves to intervene.
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