As countries across the world gear up to deal with surging inflation and living costs, with many driving up interest rates, a US-based economist has urged nations to set their monetary policies according to the specific challenges they face.
"Each country has different challenges. I would say that each country has to learn from its successes and mistakes," Joshua Aizenman, the economics chair at the University of Southern California, told Anadolu Agency during an event in Istanbul on the economic transformation the world is undergoing.
There is no mantra on reducing or increasing interest rates, Aizenman said at the Economic Transformation and New Paradigms Summit, adding it is why rates are not set by a computer.
While the hawkish central bank stances and aggressive interest rate hikes that started to be discussed at the end of the last year were obvious in most countries, some countries remained more hesitant about adjusting rates.
This year, several central banks have raised rates, especially the US Federal Reserve, the Bank of England, and the European Central Bank, while some countries, including Russia, China, and Türkiye, have decided to cut rates.
Meanwhile, the Bank of Japan and some others have kept rates unchanged.
The Fed has increased its rates gradually from 0.25% to 3.25% since its March meeting, while the Bank of England has raised rates from 0.1% to 2.25% since last November.
The European Central Bank, whose policy rate was at 0%, raised the rate to 0.5% in July and to 1.25% in September in a decision later than other banks.
The Bank of Japan has kept its policy rate at minus 0.1% for a long time.
Russia, whose policy rate was at 8.5% last December, raised it to 20% in February but has gradually reduced it to 7.5% since April.
China, where the rate was at 3.85% last year, reduced it to 3.7% in January and to 3.65% in August.
While Türkiye began 2022 with a policy rate of 14%, the country's central bank lowered it to 13% in August and 12% in September.
Monetary, and fiscal policies
Aizenman underlined that policies cannot be replicated in other countries, as they should be approached locally, and the main thing should be prioritizing the challenges.
"I suggest that each country invests in the best institutions as their priorities."
He said monetary policy should be integrated with fiscal policy, adding there is close interaction between them and other policies like macro-prudential rules and financial policies.
The key focus used to be on central banks, but this period is over and all institutions should be integrated for more cooperative solutions, Aizenman added.
He said central banks can overcome problems but not overnight, and central banks and treasuries should invest in a defensive posture.
The pain will continue for several years, but there is a way to mitigate it and make the crisis easier and less tragic, he said.
The US, China, and the EU should lead the way in easing by focusing on a brave new global economy where everyone, especially emerging markets, should be focused, he argued.
Countries with the ability to help with the adjustment should back the cooperative solution, he urged.