Global financial integration and the linkages between the financial and the real sides of economies are sources of huge policy challenges. This is now beyond doubt, after what we saw in the run-up to and the unfolding of the 2008 global financial crisis. As a consequence, the established wisdom regarding monetary policies and prudential regulation has been subject to a deep critical review, including a demise of the belief that they should be maintained as fully independent functions.
The issue is particularly relevant in the case of emerging markets (EMs), where those policy challenges associated with macro-financial linkages are even greater than in advanced economies (ACs). At the same time, the circumstances of the post-2008 global financial setting have forced emerging markets to navigate through uncharted territories, by combining monetary policies and prudential regulation in ways about which there is still a gap of missing knowledge and cumulative experiences.*
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* This article delves substantially on Canuto and Ghosh (2013), Canuto and Cavallari (2013a) and Canuto (2011).
The above paragraphs are excerpts from my op-ed that appeared on Capital Finance International.
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