The William R. Rhodes Center for International Economics and Finance

Chris Wellisz profiles Brown’s Şebnem Kalemli-Özcan, who mines business-level data to explain global capital flows.

The core assumptions underlying the decades-old inflation-targeting orthodoxy have proven to be unfit for a geopolitically fragmented world characterized by frequent supply-side disruptions. Under such conditions, central banks' traditional monetary policies are only as effective as markets believe them to be.

When global uncertainty increases, emerging markets are typically the most exposed. Historically, tighter US monetary policy has led to capital outflows, currency depreciation, and tightening financial conditions in emerging markets. This column examines how domestic vulnerabilities shape the transmission of US monetary tightening across countries. It shows that many emerging markets avoided widespread financial crises over the 2022-2023 tightening cycle due to improved monetary policy credibility and reduced foreign-exchange vulnerabilities. In a world of rising uncertainty, stronger domestic institutions are among the most effective forms of economic insurance.

In today’s interconnected global economy, geopolitical shocks cascade through trade, production, and financial networks that were built for efficiency, not resilience. As disruptions hit critical supply chains, temporary price spikes can evolve into sustained inflationary pressures, raising the risk of stagflation.

The United States’ unique economic advantages – deep financial markets, a strong institutional framework, and the world's dominant reserve currency – should not be mistaken for invincibility. In fact, markets are already pricing US policy uncertainty the same way they price that of countries that do not have a reserve currency.

In today’s interconnected global economy, tariffs produce outcomes that are very different from what traditional economic models would predict. Rather than causing only limited and temporary distortions, tariffs can generate persistent inflation, significant output losses, and damaging international spillovers.