Effects on Latin America of the U.S. Federal Reserve Bank's monetary policy in the wake of Covid-19

Abstract

The objective of this research is to explain the possible effects in Latin America of the Federal Reserve's (Fed) monetary policy due to Covid-19, through the argumentative use of the Austrian and Mundell-Fleming analytical frameworks, taking as theoretical references (Levy, 2017), (McGuinness, Hogan, & Powell, 2018) and (Lee & Bowdler, 2020) among others; The study is explanatory in nature because it goes beyond the mere description of the facts, it establishes relationships between concepts or natural or social phenomena (Hernández, Fernández, & Baptista, 2014). Among the main findings of the study are that: Latin America is the region with the highest inflation rates, with GDP per capita growth lower than other regions of the world, permanent trade balance deficit; the cyclical behaviour that has debt service (% of GDP) which is counter-cyclical with respect to the GDP growth rate and pro-cyclical with respect to foreign direct investment. It is concluded that the monetary policy measures taken, especially by the FED, generate capital outflows and capital flight, as a result of the increase in the cost of capital and devaluations that will erode per capita economic growth in Latin America, when capital migrates from emerging economies to developed economies with the world's main financial centres, as a result of the change in the FED's monetary policy, which goes from expansive to restrictive in order to preserve the dollar's function as a global reserve currency.