Collateral Consequences, Capital Flows, and Commodity Prices

The trip to the extreme lower bound of nominal policy interest rates and experiments with other unconventional policies by the major central banks was designed to help at home. The collapse of asset prices, the locking shut of intermediation, and impairment of confidence threw a massive adverse hit to aggregate demand when, in many of these countries, fiscal policy was hamstrung. These monetary policy actions were not coordinated but emulated by officials dealing with circumstances on the ground. While all policy is local, it can have global consequences. Sometimes the best place to see this is by noticing an absence. In this case, notably absent is elevated distress in emerging-market sovereigns and domestic high-yield debt despite a confluence of adverse economic circumstances.