Tim Taylor on his blog raises a very important issue: attention deficit. It is this attention deficit which matters the most in today.
Economics of the Attention Economy
January 2, 2026In the Shadow of Bank Runs: Lessons from the Silicon Valley Bank Failure and Its Impact on Stablecoins
January 2, 2026Chuan Du, Ria Sonawane, and Cy Watsky in this Fed article:
Stablecoins are crypto-assets designed to maintain a stable value against a reference asset, typically the U.S. Dollar. The peg to the dollar is supported by the assets that back the stablecoin. Stablecoins perform dollar-like functions in decentralized finance (“DeFi”) and represent a run-able liability for their issuers. As with money market funds and bank deposits, stablecoins are susceptible to crises of confidence, contagion, and self-reinforcing runs.
In this note we utilize a granular dataset to document the market stress experienced by USDC, the second largest stablecoin by market cap, during the Silicon Valley Bank (“SVB”) crisis of March 2023. SVB was a traditional bank that failed due to inadequate risk management practices.1 The bank experienced a rapid run of deposits and was taken into receivership by the Federal Deposit Insurance Corporation (“FDIC”).
We highlight three aspects of this USDC depeg episode.
First, there is a potential for two-way feedback between the traditional and the DeFi sectors. In this event, the run on SVB was the trigger for the USDC depeg, which then sparked a broader sell-off in other stablecoins. Intervention designed to backstop SVB stemmed the selling pressure on the affected stablecoins while the USDC primary market was closed. But had the run unfolded differently, the pressure for USDC redemptions might have forced Circle to liquidate backing assets (for example, U.S.Treasury securities), with potential knock-on effects on traditional financial markets.
Second, while stablecoins with high quality backing assets can maintain their pegs during normal times, they may still be fragile during periods of significant stress. When stablecoins lose their peg against the dollar, the effect can reverberate through the sector.
Third, smart contracts, such as the one-to-one exchange facilities backing Dai, can create interlinkages between DeFi participants. Such facilities can be created at the discretion of any individual participant and operate autonomously. Without appropriate consideration of the risks posed to the wider ecosystem, these interlinkages can channel and amplify contagion.
RBI’s Official Podcast – RBI Talks: Paisa to Policy
January 2, 2026Last year in Dec policy, RBI had proposed starting a podcast:
The Reserve Bank of India has been deploying traditional as well as new age communication techniques as a key part of its toolkit to ensure transparency and greater impact of its decisions, explain the rationale behind its decisions, and disseminate various awareness messages to a wider audience. The Reserve Bank has been expanding the scope of its public awareness activities including through social media over the last few years. In continuance of this endeavour, the Reserve Bank proposes to launch podcasts for wider dissemination of information that is of interest to the general public.
An year later, the RBI has launched its podcast series: RBI Talks: Paisa to Policy.
The first episode is titled “Demystifying KYC” and can be accessed at: https://youtu.be/8-PvJCKhIaw.
Shoud be an interesting initiative.
Happy New Year to the visitors and well-wishers.
January 1, 2026We enter a new year!
Wishing all the Mostly Economics visitors and well-wishers a very happy and prosperous 2026. Keep healthy and blessed.
Look forward to another year of blogging and posting.
Lessons from 18 years of editing VoxEU
December 31, 2025Prof Richard Baldwin has been editor of voxeu.orf for 18 years. He stepped down recently.
He shares his experiences and lessons from 18 years of editorship:
Since its launch in 2007, VoxEU has posted around 12,500 columns, written by about 10,500 authors, and viewed over 70 million times by over 25 million visitors. As its founding Editor-in-Chief Richard Baldwin steps down after 18 years, in this column he reflects on VoxEU’s role in connecting suppliers and consumers of policy-relevant research and how world events have ensured that the site matters more today than at its founding.
Lots of interesting insights.
When we started setting up VoxEU in 2006, the intention was to have a steady, daily fare of policy-relevant research. We went live in June 2007, and the world soon forced VoxEU to develop a second mode of operation: crisis response by leading economists. The forcing event was the Subprime Crisis of 2007 and the Global Financial Crisis it turned into in 2008.
The Subprime Crisis boosts VoxEU’s centrality.
In 2007, the US seemed to be having another one of its housing crises. Falling house prices and rising defaults were widely viewed as painful but manageable. This perception changed rapidly as did the profession’s thinking. You can follow it via the string of VoxEU columns (see, for example, the collection of crisis-linked columns selected by Andrew Felton and Carmen Reinhart and published as an eBook: The First Global Financial Crisis of the 21st Century: Part 1 August 2007 -May 2008).
At first, few believed that these developments posed a serious threat to the global financial system. That did not last long. In July 2007, two Bear Stearns hedge funds heavily exposed to subprime mortgage securities collapsed. August brought widespread credit-rating downgrades and a sudden freezing of interbank markets, as banks lost confidence in each other’s balance sheets. Central banks were forced to inject emergency liquidity. In September, the run on Northern Rock in the UK made clear that the problems were no longer confined to the US. By the end of the year, it was called the Subprime Crisis.
Starting on 13 August 2007, VoxEU posted a slew of columns by economists who really knew what they were talking about and were willing to explain the crisis in terms that any trained economist could understand. There were based on facts, practices, and institutions that few other economists knew about at the time.
Newspapers’ limits (800 words written for the average newspaper reader) just did not work for an event of this complexity. VoxEU provided leading economists with the space to explain the situation using standard economic terminology. It raised the level of the public debate and this attracted academic researchers who had also been at the cutting edge of policy-making. The list is long and includes Willem Buiter (Professor at LSE and former member of the Bank of England’s rate-setting Monetary Policy Committee), Steve Cecchetti (Professor at Brandeis University and former Executive Vice President and Director of Research at the New York Fed), Charles Wyplosz (Professor at the Graduate Institute, Geneva and adviser to central banks), Marco Onado (Professor at Bocconi and former Commissioner of the Italian public authority responsible for regulating the Italian securities market, CONSOB), and Luigi Spaventa (Professor in Rome and former Chairman of CONSOB).
The gravitas and expertise such authors brought to their VoxEU column set the site apart from the rapid flow of commentary.
Scanning White House website: Welcome to the Golden Age!
December 30, 2025I just stumbled onto the website of White House. The website welcomes you with the following words: WELCOME TO THE GOLDEN AGE! (yes in capitals letters).
As you scan thw website, you get this sense of dejavu all over again. The website is full of pictures of the “Greatest Leader/President” US has ever had and will have in future. It says things like “America is Back”,
Where did America go?
Then “The Work Never Stops”:
As if no one was working earlier.
And so on.
How all these leaders follow the playbook of tyrants is quite amazing. They use huge propoganda to dispel the message that how they are restoring the golden age and there is no one as hard working as them.
Even more amazing how humanity keeps falling into the same trap of greatness and golden age. They forget that all these leaders just care for their own glory and have zero interest in the country and its people.
Book Reviews: Indian history books by Audrey Truschke, William Dalrymple, Virat Chirana and Satish Y. Deodhar
December 30, 2025Book Reviews
Audrey Truschke. 2025. India: 5,000 Years of History on the Subcontinent. Princeton University Press
William Dalrymple. 2024. The Golden Road: How Ancient India Transformed the World. Bloomsbury Publishing &
Virat Chirana. 2022. Stories & Sutras: Timeless Legends, Priceless Lessons. Penguin Books
Satish Y. Deodhar. 2019. Economic Sutra: Ancient Indian Antecedents to Economic Thought. IIMA Books Series. Indian Institute of Management Ahmedabad.
By Annavajhula J C Bose, PhD
Former (Economics) Professor, SRCC, DU
“Once upon a time, I was great. And I am now rising to be great again”. You might say this, pointing your safety stick, to a forlorn and growling street dog, on your morning walk. The same thing has been said, over the past decade, at the national level. Haven’t you been touched by the MIGA movement—Make India Great Again?
As such, the comments made by a towering educational intellectual and administrator such as Brig (Dr.) R S Grewal are the point of departure here. On the one hand he has referred to the MIGA forces professing a national aspiration for the emergence of Bharat as World Teacher (Vishwa Guru). On the other, he has lamented that “The prevailing national discourse relies heavily on rhetoric instead of making any serious effort to start teaching about India’s past national heritage…(Its) worrying feature…is that …(it)…degenerates into hate campaigns against certain segments of society.”
There is also criticism that “it is sounding hollower than ever because all that India has to offer is land and cheap labour, apart from a handful of highly qualified CEOs”, even as the multicultural nation is increasingly polarised with manifold divisions by class, caste, race, gender, region, tribe, and creed to be afflicted with highly prejudiced, divisive, conflict-ridden, brutalized and dysfunctional zero-sum and even negative sum games (Bose and Dhwani, 2025).
In light of this, I recently bought these four historical books in order to find out what could be the noble takeaways from the great past that can offer guidance to the current elites who have utterly failed to reconstruct a depolarised and prosperous India.
Truschke has delivered a 687-page book, Dalrymple a 482-page book, Chirana a 366-page book and Deodhar a 199-page book. How these writers accomplished these tasks is beyond my comprehension. Truschke took 25 years to complete the job and Dalrymple, 5 years. The bibliographies of these books are so astounding that one life is indeed not enough to fathom ‘deep time’ like these authors have endeavoured to do, going backwards up to 10000 years or so in order to move forward now staring at an uncertain and risky future! It will take four to five months of dedicated reading for anyone to ingest such books. But I have readily grasped from them some lessons for the MIGA elites of India, and for you too in case you too want to be a kind of Brutus-elite among them.
There is no need to indulge in the arrogance that we were the greatest in the world once upon a time. It is true to find that we were great indeed. Dalrymple highlights India’s “forgotten position as a crucial economic fulcrum, and civilizational engine, at the heart of the ancient and early medieval worlds and as one of the main motors of global trade and cultural transmission in early world history, fully on a par with and equal to China.” India or Bharat, however defined, “set the template for the way much of the world would think and express itself, and would significantly alter the trajectory of the history of a great swathe of mankind. For more than a thousand years it was a garden that issued the seeds that, once planted elsewhere, flowered in new, rich and unexpected ways.”
There is no need to destroy the diversity and hide the exploitation in our country. We must know how Truschke presents the greater diversity of voices than we often hear in terms of gender, caste, class, region, language, and religion. In concrete terms, that means that we need to encounter now as in the past more women, Dalits, lower castes, poor and disadvantaged communities, south Indians, non-Indian South Asians, non-Sanskrit speakers, and non-Hindus. This diversity helps us better understand Indian history, both in underappreciated aspects and, also, its dominant groups. Hindu nationalists must not reproduce the oppression of Dalits and lower castes as was present in the first millennium CE.
The present like the past is full of sad stories, with and without silver linings. We must feel good that diversity has long been our shared feature like in the past. We also must reckon with the fact of migration now as in the past when waves of people came into our country. There is no Hindu purity now as in the past. New groups brought their own ideas and interacted with indigenous and earlier migrant populations, resulting in kaleidoscopic of syncretic South Asian traditions. Telling stories about these features must continue to celebrate the simultaneous forces of diversification and unification. Hindu nationalists must not decimate the tribal people in India. Instead they must draw on their indigenous knowledge for dealing with the climate-changed world.
We can feel great when Chirana says that we can become great by drawing on India’s ancient school of management and leadership. We can learn communication skills, negotiation skills and emotional intelligence from the historical tale of Hanuman. How to run a start-up can be learnt from Chatrapati Shivaji Maharaj. Chanakya can be our teacher in figuring out business strategy, the art of influencing and public finance. Adi Shankaracharya and Kabir can give us spiritual leadership and inter-faith messaging for coexistence in peace. Rani Abbakka was a great fighter against the Portuguese imperialism and she can ignite our passion for independence from destabilizing external forces like Srinivasa Ramanujam was the embodiment of independent intellectualism in mathematics.
We can also feel great when Deodhar informs us that ancient Indian economic thought was permeated with concerns of pursuit of material wellbeing in conjunction with charity as an instrument to provide merit goods and help alleviate poverty; provision of public goods and quasi-public goods along with market facilitation, private property rights; responsibilities of welfare state; regulation and use of common property resources, control of natural monopolies, etc. The MIGA movement must factor in these concerns into their policies. In other words, India must become great again by adopting inclusive policies to overcome growing inequalities and social disharmony integral to the shameful current realities.
Let us heed what these India’s historians and historical tales tell us, not the ranting of religious demogogues and megalomaniacs misleading the people to hate and kill each other. Freedom, respect, mercy and love should guide us in living together and making this world a better place like the Socotra island in terrible Yemen.
References
Bose, Annavajhula J C and Dhwani, Arun. 2025. Social Healing and Management Reform. Hans Shodh Sudha. 4 (4). Hansraj College Journal.
https://briggrewal.com/indias-vishwaguru-syndrome/
Why central bank independence matters – lessons from the past 50 years
December 29, 2025The talks about Trump replacing Powell with a more compliant Fed chair are intensifying. This is giving rise to discussions on central bank independence.
ECB economists have written a recent paper on central bank reforms in 155 countries over 50 years. They explain the findings in the ECB blogpost by Alexander Jung:
Are independent central banks better at ensuring price stability? A study of 155 central banks over 50 years shows why independence makes a difference. Central banks that are shielded from government control are able to pursue more credible monetary policies and are therefore better at keeping prices stable.
How foreign capital changed Indian banks and their lending
December 29, 2025IdeasofIndia podcast by Shruti Rajagopalan has this PhD student series where the team picks up bright PhD scholars working on different aspects of Indian economy and society. The series brings ot light impressive work of young researchers in the PhD job market.
In the same series, I cam across this podcast by Ammu Lavaniya, a Phd Student at George Washington University. Ammu has written this interesing paper on how 2004 banking sector reforms where foreign participation was allowed in Indian banks changed Indian banks and theil lending.
She discusses the paper with Shruti in the podcast where she explains the research methodology and findings in considerable details:
Will AI Improve Undergraduate Economics Education?
December 29, 2025Prof Matthew Kahn of University of South California has an interesting paper asking the question: Will AI Improve Undergraduate Economics Education? HT: Marginal Revolution Blog
For decades, undergraduate economics educators have followed a well-worn playbook featuring textbooks, lectures and problem sets. Students have passively listened, taken notes and studied for exams. AI disrupts this educational process. Some students are using this tool as a substitute for their own precious time.
What is our best response?
This paper provides a prospective analysis of how to restructure every phase of the undergraduate economics experience to improve the major and better prepare students for their uncertain future. Departments face a principal/agent issue in implementing major curricular reforms.
I discuss the incentive problems that arise both within economics departments and across departments. If we win this competition to reimagine the undergraduate experience, will the Deans reward us?
He hits the nail on the head:
Going forward, the Deans will face more pressure from tuition paying parents who are already expressing their displeasure with rising tuition costs and diminishing job market opportunities for their children. Many parents are questioning whether university education continues to be a cost effective investment.
The rise of AI poses a new challenge for Universities as our students are less prepared for a rigorous education and they quietly rely on the AI technology to substitute the robot’s time for their effort. While we face this ”University Doom Loop”, Economics departments now have an opportunity to seize this moment by upgrading our major, positioning economics as a refreshed ”product”.
He discusses how AI is to integrated into Econ 101 and also poses some questions to Grok! Both serious and fun stuff…
Book Review – The Diane Elson Reader: Gender, Development and Macroeconomic Policy.
December 25, 2025Book Review: Diane Elson. 2025. The Diane Elson Reader: Gender, Development and Macroeconomic Policy. Agenda Publishing.
Annavajhula J C Bose, PhD
Former Economics Professor, SRCC
Every undergraduate girl student of economics must know who is Diane Elson and read this book of hers. Here is a summary.
The bone of contention of Elson is that we are not going to have a better world in terms of a gender-equitable sustainable economy unless economic analysis is “challenged and transformed so that fostering equalities (gender, class, race, ethnicity, location) becomes a central objective.”
Case of Bulgaria: from hyperinflation to Euro
December 23, 2025Charles Enoch and Anna-Marie Gulde of IMF trace stunning history of Bulgaria which transitioned from hyperinflation to Euro in 3 decades:
On a warm June morning in Sofia in early 2025, the news spread quickly through the halls of the Bulgarian National Bank. The convergence report Bulgaria had requested from the European Commission and the European Central Bank in February was complete. It weighed Bulgaria’s economy and laws against the requirements for joining Europe’s single currency.
This was not the first such report, but so far Bulgaria had never shown full compliance with the accession requirements. This time, however, would be different. This time, Bulgarians believed, Brussels and Frankfurt would green-light their country’s membership in the euro area.
The Bulgarians had been working toward this moment for a long time. The country had joined the EU in 2007 and hoped to take a seat at the euro area table soon thereafter. It would take 18 years to achieve that objective: Bulgaria will become the 21st member of the euro area on January 1, 2026.
To understand this remarkable trajectory, we must go back to the 1990s.
The cost of state-building: evidence from Germany
December 23, 2025Prof Leander Heldring of Northwestern University gives you a different aspect of infra building. He shows how prior infra building helped Nazi regime later:
I examine the potential of pro-development state (capacity) building projects to be coopted for repression.
I leverage the natural experiment created by the differential build-up of capacity between formerly Prussian and formerly non-Prussian parts of unified Germany, and the radical policy shifts instigated by the Nazi regime. Across a geographical discontinuity, and across different stops of the same train transport to the East, I find that Prussian municipalities were significantly more efficient at deporting Germany’s Jews. They were also better at providing public goods and at collecting taxes. Just before the Nazis came to power, Prussian municipalities also provided public goods more efficiently, but were not differentially involved with anti-Semitism.
I show that democratic oversight and aspects of bureaucratic culture can mitigate the potential for future abuse of state building projects.
Trillions for War, Pennies for People: How Soaring Military Spending Fails Americans
December 22, 2025William Hartung and Ben Freeman have written a new book titled: Trillion Dollar War Machine: How Runaway Military Spending Drives America into Foreign Wars and Bankrupts Us at Home.
The authors discuss the book with Lynn Paramore of INET:
A$1 trillion Pentagon budget is hard to grasp. For scale, it could pay for a year of U.S. public K–12 education, nearly a year of Social Security retirement benefits, or more than the entire annual budgets of most nations. Yet President Trump proposes to spend that money on the 2026 defense budget, while millions of Americans can’t cough up the funds to see a doctor.
And what do we actually get for all that military money? Safety? Cutting-edge weapons tailored to urgent threats?
None of the above, argue William Hartung and Ben Freeman in their new book, Trillion Dollar War Machine: How Runaway Military Spending Drives America into Foreign Wars and Bankrupts Us at Home. Instead, they reveal how what we’ve built is a self-feeding racket of corruption, misaligned incentives, and grift that courts catastrophic wars overseas while eroding democracy. It’s devouring the money Americans need to survive – never mind thrive.
Thomas Jefferson warned that war is not only horribly inefficient, but it “multiplies, instead of indemnifying losses.” Looks like we’re learning that lesson the hard way. This isn’t some abstract problem: as Hartung and Freeman caution, the system could quite literally blow us all to kingdom come. Think Kathryn Bigelow’s “House of Dynamite” was unsettling? Wait until you read this book.
A Teacher Writes to Students Series (59): How Do You Look at the World? Through Which Lenses?
December 22, 2025A Teacher Writes to Students Series (59): How Do You Look at the World? Through Which Lenses?
Annavajhula J C Bose, PhD
Department of Economics (Retd.), SRCC, DU Read the rest of this entry »
Teaching economics of populism and hate
December 22, 2025Junaid Jahangir provides a teaching plain to teach economics of populism and hate in the latest edition of Real World Economics Review:
The objective in this paper is to list the salient ideas in the economics of populism to provide a lesson plan at the introductory and elective levels in economics. This is achieved through a literature review and book reviews in the economics of populism, the economics of hate, the political economy of both populism and hate, and popular books by noted academics, Jason Stanley and Yuval Noah Harari. A list of salient ideas is highlighted and complemented with video clips including ‘The Mob Song’ from Disney. Activities based on parsing song lyrics, contrasting viewpoints, and sample questions are outlined for the purpose of teaching the economics of populism.
100 years of Central Bank of Chile
December 19, 2025Central Bank of Chile was established in 1925. The year 2025 marks its centennial.
The central bank of Chile has put up a website to mark its centenary. The central bank organised a conference.
Rosanna Costa, Governor of the Central Bank of Chile gave a speech:
Good morning. Thank you for being here. This has been a very significant year for the Central Bank of Chile. Reaching 100 years is a major milestone. We have had a year full of activities, seeking to connect and share with the community, with people.
This Conference is the culminating point of this commemoration, connecting us with the knowledge that nourishes and strengthens our actions. We are so pleased to have all of you here.
Our centennial has also been a time for reflection about ourselves, our origins, and our future. Economic history begins with humanity. After all, economics is nothing more than the study of scarcity to meet ever-growing demands and the process of creating and adding value, which is intimately linked to the imperative of choosing when faced with the dilemmas that scarcity presents us in all its dimensions.
From autarky to barter, the great economic advances are social steps that naturally and rationally led to specialization and exchange. It is hard to visualize the great leap that money represented, even in its most primitive forms. Humanity took many steps to develop reliable money, that would be widely accepted and easily transported. These steps are closely linked to social evolution and the way we organize ourselves in communities.
Central banking is very young in this temporal dimension. Its development has gone hand in hand with a primary objective: stability, which has not changed, although the way we achieve it has, as a result of experience and the advancement of knowledge.
Today, central banks operate amid pillars we recognize as essential, such as autonomy, independence, technical knowledge, and transparency, all intertwined in building trust and credibility. These are principles we treasure because they allow us to be more efficient in achieving our objectives.
Now, I will review the history of our own central bank, what we have learned from it, and from there invite you to reflect on the challenges of the future, the central theme of this Conference.
Tech stock performance across US and China: what explains the differences?
December 19, 2025Livia Pancotto and Yui Ching Li in this BIS report points how tech stock performances differ in US and China:
Tech stock performance has diverged markedly around the globe in recent years. Large technology firms in the United States and China have followed different trajectories, driven by earnings prospects, business models, regulatory conditions and risk premia. While advances in artificial intelligence (AI) – and the investor interest surrounding them – have boosted valuations of a subset of firms, they do not fully explain the differences across global technology markets. This box examines the market performance and global footprint of US and Chinese big tech firms and compares their valuation patterns with those of major technology firms in other economies.
The stocks of US technology firms have risen much faster than the overall market and Chinese counterparts. The US “Magnificent 7” (M7) have consistently outperformed the S&P 500, especially since the public release of ChatGPT in late 2022. Such strong gains were underpinned by solid earnings (as discussed in the main text), improved operating efficiency and sustained AI-related investment and demand. These dynamics have strengthened the M7’s global footprint, with their share in global equity benchmarks recently approaching one quarter of total market capitalisation.
By contrast, China’s “Terrific 10” (T10) experienced a sharp rally through 2020 and early 2021, fuelled by strong earnings momentum and the pandemic-driven surge in digital adoption. The upswing, however, gave way to a prolonged correction due to regulatory tightening, weak domestic demand and a shift in global investor appetite away from Chinese assets. More recently, prices have begun to recover amid renewed interest in domestic AI developments following the DeepSeek release in January 2025 and signs of a more supportive policy stance for the tech sector, which have helped lift investor sentiment. Nonetheless, their global presence remains well below previous peaks and modest compared with M7.
Valuation patterns mirror these divergences. The M7 have elevated valuations within a relatively narrow range, consistent with investor beliefs of strong earnings growth prospects, established business models and investor optimism about potential AI-driven productivity gains. T10 valuations are generally more subdued and more varied, reflecting higher risk premia, regulatory uncertainty and pronounced swings in investor sentiment. Global tech peers outside the United States and China show intermediate valuation levels with moderate dispersion, possibly due to broader business model diversification and lower sensitivity to region-specific shocks.
A simple measure of monetary policy transmission
December 18, 2025I develop a new measure of how the Federal Open Market Committee’s (FOMC’s) monetary policy stance transmits through money markets. The measure is based on forecast errors resulting from using the Effective Federal Funds Rate to predict a variety of money market rates. The measure shows that monetary policy transmission has deteriorated in recent months but does not exhibit a breakdown comparable to those in 2018 through 2020. The Tri-Party General Collateral Rate (TGCR) transmits more robustly, consistent with a recent proposal for the FOMC to adopt TGCR as its operating target instead of fed funds.
Emerging Market Resilience: Good Luck or Good Policies?
December 17, 2025A team of IMF economists (Marijn A. Bolhuis, Francesco Grigoli, Marcin Kolasa, Roland Meeks, Andrea F Presbitero, Zhao Zhang) try to figure the resilience in the emerging market economies:
Emerging markets have shown remarkable resilience during risk-off episodes in recent years. While favorable external conditions—good luck—contributed to this resilience, improvements in policy frameworks—good policies—played a critical role in bolstering the capacity of emerging markets to withstand the adverse consequences of these events.
Improvements in monetary policy implementation and credibility have reduced reliance on foreign exchange (FX) interventions and capital flow management measures, and stricter macroprudential regulation also contributed to less FX interventions. Also, central banks have become less sensitive to fiscal interference and hold sway over domestic borrowing conditions. Looking ahead, countries with robust frameworks face easier policy trade-offs and are better positioned to navigate risk-off episodes.
In contrast, economies with weaker frameworks risk de-anchoring inflation expectations and larger output losses if monetary tightening is delayed, especially when persistent price pressures emerge. In these settings, FX interventions offer only temporary relief and are less necessary when policy frameworks are sound.
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