A rate hike by the Federal Reserve could have greater global repercussions than in the past because the economy has changed and central banks have little experience moving away from interest rates of zero, European Central Bank Vice President Vitor Constancio said.
A Fed hike would have a bigger impact because emerging markets, particularly China, are now integrated in the global economy to an unprecedented degree, countries are more interlinked in production, cross-border capital flows have increased, and forward guidance has become a crucial monetary policy instrument, Constancio said on Thursday.
“The truth of the matter is that given the lack of historical precedents on what the impact of a major economy departing from a zero lower bound environment is, market analysts and policy makers do not have much of a choice other than ‘learning in real time’,” he said in prepared remarks for a speech in Hong Kong.
While diverging monetary policies reflect differences in fundamentals in the euro zone and the United States and the traditional view is that this should create no problems, “This time the divergences could have greater global repercussions than in the past”, Constancio said.
Source: Reuters
