Unconventional Monetary Policies (UMPs), initially designed to resuscitate domestic growth Uin advanced economies, have now permeated into the deepest cracks of the global financial system. The prevalence of near-zero interest rates and large Quantitative Easing programmes have acted as a drug to the global economy – any deviation from an accommodative monetary stance, from higher interest rates to slowing down of asset purchases, sends ripples of volatility across financial markets. In the context of a global economy with very strong financial linkages, the fate of which is increasingly intertwined with asset price movements, it is critically important to evaluate the ensuing spillovers from such UMPs.

The build-up of systemic risk in the form of asset bubbles and the increased vulnerabilities from rapid capital flows can be especially detrimental to emerging economies. Currently, emerging economies do not have in place the institutional capacity and flexible mechanisms to quickly adjust to adverse shocks from a reversal of capital flows.

This paper seeks to highlight the risks that emerging economies are exposed to given extended use of UMPs in advanced economies. Subsequently, the paper explores a few ideas that can be implemented in the short, medium and long term to increase the financial resilience of emerging economies and ensure stable economic growth.