COMMENTARY Monetary Policy and Financial Stability: An Emerging Markets Perspective

The world has endured a deep financial crisis and a great recession. Emerging markets are performing much better than they have in the past, especially in Latin America. The huge difference between the recent crisis and previous ones in emerging economies is that this time ‘it was not our fault’. The evidence from the emerging countries facing this unprecedented global downturn indicates that policy-makers have learned some lessons from previous crises. In this article, I discuss the role of monetary policy in the context of an inflation-targeting regime and the challenges it faces regarding the need to preserve financial stability. Monetary policy has been under significant stress. It had to face a rapid increase in inflation as a result of soaring commodity prices, followed by declining inflation as the world entered the Great Recession. In addition, it has had to preserve financial stability, and in emerging countries it has had to deal with many challenges on the exchange