Mechanisms for adapting monetary policy to heterogeneous monetary shocks in emerging market countries

Abstract

This article examines the mechanisms for adapting monetary policy to the heterogeneity of monetary shocks in emerging market countries. The relevance of this study lies in the growing fragmentation of the global financial space and the asymmetry of external impulses, which calls into question the applicability of universal monetary rules to structurally heterogeneous economic systems. The aim of this paper is to systematize and conceptually substantiate the qualitatively different modes of central bank responses to demand, supply, and terms of trade shocks, based on the specifics of the transmission mechanism channels in Emerging Market (EM) countries. The emphasis is on uncovering the asymmetry in the impact of monetary impulses in the context of a dualistic production structure. The methodological framework draws on the concepts of open-ended neo-Keynesian macroeconomics, the theory of financial frictions, and the global financial cycle, complemented by a structural and functional analysis of institutional constraints. It is shown that the heterogeneity of the EM economic space predetermines the phenomenon of forced procyclicality, in which an adequate response to inflationary pressure generated by currency depreciation inevitably deepens the downturn in sectors dependent on domestic credit. Effective adaptation is achieved not through fine-tuning a single key rate, but through diversifying the toolkit with non-monetary stabilizers targeting specific vulnerabilities. The theoretical significance of this work lies in enriching the conceptual framework for monetary policy analysis by integrating the microeconomic factor of economic agent heterogeneity. Its practical value lies in developing principles for flexible policy design, free from rigid rules and sensitive to the identification of the nature of the shock.