Monetary easing can harm growth in some open economies, IMF researchers suggest

Rates uncertainty

Monetary easing in open economies that have domestic leverage constraints or hold large amounts of foreign debt may depress economic growth, two researchers say in a new IMF working paper.

Paolo Cavallino and Damiano Sandri propose a theoretical model that examines the effects of monetary easing in open economies when international monetary conditions are tight. The model supposes monetary easing triggers capital outflows in open economies, as foreign investors sell domestic bonds.


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