At last week’s seminar Mr Franz Ruch of the South African Reserve Bank spoke on the topic of the tapering of quantitative easing in the U.S. and what it means for monetary policy in developing countries like South Africa.
It was a good opportunity to talk about all the things that you would read about in the econoblogosphere: QE, the global savings glut, secular stagnation, taper tantrum, austerity and the confidence fairy all under the heading of the macro wars. Franz’s analysis showed that there are many different channels through which capital flow reversals can influence the economy. Unfortunately there are not as many policy options:
- Macro responses may include increased interest rates, foreign exchange interventions, or counter-cyclical fiscal policy.
- Prudential responses may include stricter capital requirements for banks, limiting banks’ foreign exchange exposure, easing capital inflow regulations, or temporarily restricting capital outflows.
- The ideal, of course, is structural reform to boost competitiveness and encourage FDI and exports.
You will also read about this in the media: