Exchange rate stability and global shocks: Policy for inflation control in emerging markets Article

Yilmazkuday, H. (2026). Exchange rate stability and global shocks: Policy for inflation control in emerging markets . JOURNAL OF POLICY MODELING, 10.1016/j.jpolmod.2026.107124

cited authors

  • Yilmazkuday, H

authors

abstract

  • Emerging market economies face simultaneous global shocks that increase domestic inflation. This paper measures the relative effects of geopolitical risk, trade policy uncertainty, climate policy uncertainty, supply-chain pressures, and domestic exchange rates on inflation across 58 emerging markets from 1998 to 2024. The analysis utilizes a Bayesian structural vector autoregression model to isolate the causal impacts of these variables within a single empirical framework. The results indicate that geopolitical risks, supply-chain pressures, and climate policy uncertainty consistently act as inflationary shocks. In contrast, trade policy uncertainty yields two-sided effects, acting as an inflationary shock in certain economies and a disinflationary shock in others. The empirical findings establish that domestic currency depreciation is the largest and most immediate driver of inflation, explaining the highest percentage of inflation volatility compared to all measured global shocks. Based on these results, inflation control strategies must prioritize exchange rate stability. Central banks should maintain credible monetary regimes to anchor inflation expectations, while governments must implement structural interventions to diversify supply chains and manage commodity reserves.

publication date

  • January 1, 2026

published in

Digital Object Identifier (DOI)