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Market stress raised questions about contagion from Turkey to other emerging economies in April 2021. Robin Brooks and Jonathan Fortun compare the pressure with the 2013 taper tantrum and argue that stronger starting conditions limited wider spillovers. Their contemporary assessment also retained the lira fair value estimate, anticipating that tighter financial conditions would narrow Turkey’s external deficit.
Read the workTurkey’s currency response to a sudden stop depends on how domestic activity and credit adjust. Robin Brooks, Jonathan Fortun and Ugras Ulku contrast the recession and external adjustment of 2018 with the credit expansion that limited recovery in the lira after the 2019 shock. Writing in March 2021, they expected the new episode to resemble 2018 and retained a fair value estimate of 7.50 lira per dollar.
Read the workRising US yields were already triggering substantial emerging market outflows in March 2021. Robin Brooks and Jonathan Fortun nevertheless distinguish that episode from the 2013 taper tantrum: previous inflows had been smaller, and current accounts and real exchange rates were better positioned. Those initial conditions supported their view that the disruption would remain a setback rather than a systemic collapse.
Read the workDaily flow indicators signaled substantial emerging market outflows from early March 2021 as rising US long term real interest rates put pressure on assets. Jonathan Fortun, Benjamin Hilgenstock and Elina Ribakova found local markets already under strain while emerging market credit had been more resilient. Comparing the shock with the taper tantrum, they warned that further stress was possible, especially where large government financing needs met shallow domestic markets.
Read the workEmerging market fiscal space depended heavily on borrowing costs in March 2021. Jonathan Fortun and Sergi Lanau assess solvency and refinancing risks under persistently low rates and under a return to higher rates. Brazil and South Africa appeared especially vulnerable, with the required fiscal adjustments large relative to historical experience.
Read the workThe IIF’s March 2021 valuation update found greater dollar overvaluation even after its real effective depreciation. Robin Brooks and Jonathan Fortun linked the result to a widening US current account deficit amid fiscal stimulus and rapid recovery. Their model identified substantial undervaluation in China’s renminbi, Brazil’s real and Russia’s ruble, while Argentina and South Africa showed overvaluation. These are the study’s estimates for 2021, not current currency assessments.
Read the workSlowing credit offered Turkey a route away from consumption driven external imbalances in early 2021. Robin Brooks, Jonathan Fortun and Ugras Ulku connect the previous year’s credit expansion with reserve losses and a wider current account deficit. They argue that preventing excessive lira appreciation would help redirect the economy toward exports and investment.
Read the workLow borrowing costs improve fiscal sustainability, but do not make deficits unlimited. Jonathan Fortun and Sergi Lanau examine the limits of that argument in February 2021: interest rates below economic growth help debt dynamics, yet sufficiently large deficits can overwhelm the benefit. Their assessment suggests that low rates could make primary deficits of 3 to 4 percent of GDP feasible in developed economies, rather than removing the need to assess fiscal constraints.
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