What if EMs implement unconventional monetary policies

Those unconventional monetary policies include forward guidance, altering and expanding the size of the balance sheet. When I studied extensively at the literature regarding the policies mentioned, it is evident that there are three key purposes that a central bank wants to achieve:

• To affect the term premium (short-term yield vs. long-term yield).
• Real interest rates
• Rates spread

For advanced economies like the US, the UK and Japan to have their central banks to implement those policies will not be a problem. Nonetheless, especially in the post-COVID-19 period, we rarely ask whether central banks from emerging economies can replicate the same methods.

As of this post was written, there are around 40 countries where the policy rate is below 1.00%. Most of these countries are in the Euro Area. But there are two countries where the policy rates are inches away from the zero lower bound (ZLB): Thailand and South Korea.

Even though the implementation of these ZLB policies is straightforward for major central banks, it might be different for central banks in the emerging economies since there are other factors need to be considered. The ones I could think of right now are (i) FX, (ii) yields relative to other EMs, and (iii) institutions such as the pension funds.