INVESTIGATE THE STRATEGIES THAT EMERGENT ECONOMIES ARE EMPLOYING TO ADDRESS THE ESCALATING PRICES THAT HAVE RESULTED FROM GLOBAL SUPPLY CHAIN DISRUPTIONS AND CENTRAL BANK INTERVENTIONS.

Abstract

In the aftermath of the pandemic, both advanced and emergent economies have experienced an increase in price levels in recent years. The imbalance between the supply and demand sectors is the likely cause of the spike. The supply chain has been significantly impacted by the pandemic and the conflicts in Eastern Europe. Disruptions in global supply networks were the consequence of the majority of production and distribution activities being disrupted during the pandemic. Developed nations implemented excessive expansionary fiscal policies during the pandemic, which contributed to the increase in prices.

The monetary authorities were confronted with a challenge in 2021 and 2022 as a result of the significant increase in prices. This challenge tested the reliability of their policy frameworks and their commitment to maintaining price stability. "Inflation in numerous countries reached levels that had not been observed in over four decades." The majority of monetary authorities, particularly those in advanced economies, delayed making policy adjustments until they were certain that the downside risks had diminished. Consequently, the delayed response necessitated a much faster and more substantial increase in interest rates than had been observed in decades. Additionally, the monetary authorities were compelled to act promptly in order to reduce their balance sheets. Nevertheless, this abrupt, aggressive, and multifaceted contraction resulted in the development of new risks related to the sustainability of fiscal positions and financial stability. It also presented obstacles for households and businesses that were caught off guard by the sudden rise in financing costs (Ubide et al, 2024).

Several interconnected factors, such as persistent global supply chain disruptions and interest rate increases by monetary authorities of advanced economies, contributed to the intensification of rising price  in emerging economies. "The sharp tightening of monetary policy in advanced economies, particularly the United States, has frequently resulted in financial stress or even crises in emerging markets." Global investors have typically withdrew rapidly when AE interest rates have increased due to the increased credit and currency risks in EMs (IMF, 2023). Currency stability, interest rates, and capital flows in emerging economies are influenced by central bank policy adjustments in advanced economies, particularly the United States.