Have emerging market economies (EMEs) decoupled from the advanced economies?
• Should central banks persist with pure inflation targeting? • Should financial stability be an explicit mandate of central banks? • Are controls an appropriate mechanism for managing the capital account? • Has fiscal dominance of monetary policy ended? Question 1 : Have emerging market economies (EMEs) decoupled from the advanced economies? 8. The answer before the crisis was an increasingly assertive ‘yes’. The decoupling hypothesis held that even if advanced economies went into a downturn, EMEs would not be affected because of their improved policy framework, robust external reserves and resilient financial sectors. It is difficult to trace the precise origins of the decoupling hypothesis but it would be fair to surmise that it was inspired by the superior growth performance of EMEs as compared to advanced economies. 9. Clearly, differential growth performance by itself is not conclusive confirmation of the decoupling hypothesis. But the decoupling hypothesis failed the first test
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